From thestreet.com
Oh To Be in Denver, Now That Opticals Are Here
By Adam Lashinsky
Silicon Valley Columnist
Originally posted at 7:00 AM ET 8/30/00 on RealMoney.com
Wonk Alert
Denver's the place to be this week for market pros seriously interested in optical networking, those newfangled
networks that run on light impulses rather than electrons. The event is the National Fiber Optic Engineers
Conference, the annual meeting of a bunch of folks who must be tickled silly that the rest of world suddenly is
interested in them.
Tom Astle, a Merrill Lynch analyst who watches the optics world from Canada (home to Nortel (NT:NYSE - news)
and the part of JDS Uniphase (JDSU:Nasdaq - news) that isn't in Silicon Valley), reports to clients that the major
themes he's been watching have been confirmed in Denver: It's tough for optical companies to get parts (that's good
for component makers); the industry still is in its early stages (that's good for momentum investors); and Nortel is
getting bigger and bigger (that's good for Nortel).
Indeed, Astle notes that California market research firm Dell'Oro Group used the Denver conference, which runs
through Thursday, to announce that Nortel's market share for global optical systems has risen to 43% this year from
29% a year ago. "Nortel's the play," he says of the old Canadian phone-equipment company whose shares, at 80,
are up sixfold over the last year.
Logic would suggest, however, that optical-networking companies constitute an Internet-like bubble given the
eye-popping valuations the public awards stocks like JDS Uniphase, and the sums companies like Applied Micro
Circuits (AMCC:Nasdaq - news) shell out to acquire targets like MMC Networks (MMCN:Nasdaq - news) (AMCC
agreed Monday to buy MMC, which had 1999 sales of $70 million, for $4.5 billion).
But the heat of the moment clearly is no time for people to take seriously the notion of investment bubbles.
"I didn't hear one person mention it," counters Joe Noel of Pacific Growth Equities in San Francisco, who follows
companies that make testing products for optical networks. Noel, phoning in from the conference, suggests that an
"if-you-make-you-can-sell-it" mentality persists in the industry, judging from the mentality in Denver.
Noel reports seeing more than a hundred booths for small optical-component makers, each undoubtedly hoping to
get purchased by JDS, Corning (GLW:NYSE - news) or another optical aggregator. An amusing twist, he notes, is
that where many companies normally tout their products at conferences like this one, these companies use their
wall space to look for new employees, with "join our team" banners being the most prominently displayed.
It probably takes a veteran Internet watcher to put all this in perspective.
"Optical is where the bubble is now," says Brian Oakes, a longtime media analyst with Lehman Brothers who
helped hype Net stocks (the same ones his successor, Holly Becker, is knocking down now) before joining Cendant
as its top Internet dealmaker. "But the bubble could go on for quite a while. After all, the Internet bubble lasted three
years longer than anyone thought it would."
Well said. |
