you saved me the time of listening to the CC. Great work.. thank you very much. Does it bother you that the sequential revenue rate QOQ is slowing ?
Not a bit. Q3 was exceptional and analysts knew this going in. I also suspect the LU fiasco gave the company a slight scare and perhaps they don't want to take any chances of ever having to disappoint. How much easier to guide conservatively and give yourself room to surprise on the upside.
PIRI hasn't even begun to realize its potential. It was basically even from Q2 to Q3 and considering how well SDL filled orders from customers other than LU, it's clear there's a lot of demand for their products. When SDL bought PIRI almost its entire customer base was LU.
Also keep in mind SDL will likely be part of JDSU when the next reporting period rolls around and there's nothing to be gained by setting a precedent the combined company might not be able to follow. The downside of having to guide lower is so unthinkable any CFO would be crazy to take a chance of that happening. If McGinn's taught us anything, it's that. [Too bad he's such a slow learner himself.]
Now take a look at the numbers. FY00 estimates are for 1.37 (H&Q) and based on the current three quarters (.22, .33, .45) they only need .37 more. They made .45 this quarter and are guiding for 15% or more, a number that puts them over the top with lots of air. Let's face it, they made December's numbers a quarter early. Not too shabby. :)
Furthermore, the company is expanding all facilities by a factor of 5 and some of the expansions are well under way, as noted in the conference call. [PIRI] Will expand facilities by 3 over the next 6 mos. Just completed 24K expansion and purchased 47K sq. adjacent to current facility. . . . Expanding NJ facility from 18K sq. to 130K sq. ft. The first 70K sq. ft. For Q1 of 2001. Rapidly adding new staff and equipment. [increasing] production rates 5X more than today over next 12 to 18 mos. . . . Expanding BC facility. 23K sq. added this year. And presently planning 100K sq. ft additional. Up to 5X in 12 to 18 mo. . . .
Don then added, "We will be over $1 billion in 2001. Might be able to do significantly better than that. "
Over the last two years he has never equivocated. Even when the company was in buyout talks and he was questioned about being acquired, his answer was non-committal but omitted the usual disclaimer that they were more likely to acquire than be acquired. I noticed the omission and tucked it away for future reference. If he says they'll do better than $1 billion, they will.
Is it possible that most aggressive group of funds would be leaving SDLI soon ?
Why on earth would they leave when the fun is just beginning? Did you notice the increase in FMR's position I posted the other day?
freeedgar.com
Yes, there will be some re-weighting as the price goes up and SDL becomes a larger percentage of a portfolio than is allowed. The merger will also cause some shifting, though I suspect most funds have done that as they tidied their books for the October quarter.
No matter how conservative Mike's guidance was, analysts will have to upgrade based on today's numbers and conference call guidance. And arbitrageurs will have to re-think the spread based on Don's positive comments.
Tomorrow could be a lot of fun as shorts scramble to cover.
Pat |
