The New America
Friday, September 1, 2000
investors.com
DSL Complaints Abound, But Firm Thriving
By Catherine Lacoursiere
Investor's Business Daily
They say the best things in life are worth waiting for. But some anxious users of digital subscriber lines, or DSL, aren't so sure.
Stories abound of long waits to be connected to this high-speed service. Even when a technician does arrive, technical glitches often delay the installation.
"I can't stress enough what an arduous task it is to install these broadband pipes," said Jim Jungjohann, analyst with CIBC World Markets. Half of all DSL installations fail on the first try, he says.
Still, plenty of residents and businesses are lining up for this service. That's been good news for Sunrise Telecom Inc., which offers testing gear to speed up this task. Sunrise's hand-held devices are used to verify service and diagnose problems on telecom and Internet networks.
"The best solution is to go work with Sunrise," Jungjohann said. "There are 10 guys out there trying to build digital subscriber line solution equipment shipping the same boxes."
Half The Market
Sunrise controls 50% of the hand-held DSL testing market with its popular compact devices, he says.
Image: Rising Sun
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DSL used to be Sunrise's sole product focus. But with the $4 billion global verification market expected to grow 30% annually over the next few years, Sunrise decided to diversify and become a larger broadband play. Now it supplies test-and-measurement gear for the cable, fiber-optic and signaling markets.
"We are (still) a single-focus . . . company," Sunrise Chief Executive Paul Chang said. "Our focus is the broadband access area."
Said Conrad Leifur, analyst with US Bancorp Piper Jaffray: "They are rapidly addressing new verification opportunities. The main driver is the exploding deployment of broadband to data services over DSL and cable TV networks."
Consider Sunrise's initial public offering on July 13. Sunrise led a triumvirate of telecom infrastructure offerings that day. Its stock soared 167% above its $15 offering price, closing at above 40, thanks to building demand for DSL services.
Despite growing pains, sales of DSL lines should go from $378 million today to $7.9 billion in 2003, says researcher International Data Corp.
Hoping To Diversify
Sunrise's test gear for DSL networks equals 80% of its sales. The company envisions a more diversified revenue mix for 2001. It sees DSL making up 70%-77% of revenue, fiber optics nearly 15% and cable and signaling each making up 5%.
Leifur expects the DSL business to continue to exhibit strong growth. Some of the growth will come from the customized DSL testing gear it began shipping to Lucent Technologies Inc. last quarter. That business alone equals 10% of Sunrise's sales. Leifur expects it to grow to $15 million in 2000.
Its fiber-optics business should become a larger slice of revenue. Those sales should surpass $20 million in 2001, analysts say.
"They've already shown some very good initial strategy with fiber-optic test sets," Leifur said. "They started to ship in December 1999, but it has become a significant business already."
Growth In Cable
Sunrise's cable business was buttressed by its recent acquisition of Hukk Engineering. Hukk had an established relationship with cable provider TCI, now merged with AT&T Corp.
"We see a very good growth opportunity," Chief Executive Chang said. "Companies like AT&T are getting very aggressive with Internet services and working on the telephone side with cable systems." Chang expects cable sales to grow 45% this year.
The company's February acquisition of Pro.Tel put Sunrise in the business of testing Web-based signaling protocols. These mechanisms monitor and route signals over a network.
"We are now combining local area networks with the Pro.Tel product line so we can really attack the Internet protocol market with these emerged platforms," Chang said.
Chang says more acquisitions are in the works.
"We are not looking for large deals. We are looking for leading-edge technology," he said.
Rivals
Sunrise competes with Agilent Technologies Inc. in the DSL, optical and cable markets. In DSL, it also competes with TTC, a division of Dynatech Corp. Another Dyna-tech unit, Wandel Golterman, competes with Sunrise in cable. Digital Lightwave Inc. is the other big rival in the optical area.
Sunrise's early development of hand-held verification devices has helped it maintain its lead. The company started out in 1991 making small portable testing devices that provide the same functionality as large testing gear, Chang says. Versatility is another plus. Its flagship DSL tester, for instance, can be used across multiple DSL technologies by simply changing the cartridge in a plug-and-play module.
Sunrise's margins, though, may come under pressure as it defends its turf, CIBC's Jungjohann says. Currently, its gross margins are in the mid-70% range. Contributing to shrinking margins will be price competition and increased overhead due to the company's expansion of its manufacturing capacity.
In the second quarter, Sunrise's earnings rose 86% to 13 cents a share. Revenue rose 68% to $27.5 million. Analysts polled by First Call expect earnings to rise 83% to 44 cents a share in 2000 and reach 50 cents in 2001. The stock trades as SRTI near 44. |
