Scotsman,
You overall theory is sound but you have to pick the right "equipment makers"
On your list, copper mountain is in DSLAM-- very competitive with some huge cats in their like Lucent; margins should be dropping and the Central Office Buildout is much further along than the CPE penetration so less upside anyway in my view.
Covad is not even an equipment supplier - they provide a service.. service providers will have a hard time as well because their commodity will be dropping in price signifficantly... COVD deals more with business then residential at this point but just to put it in perspective their "product" sells for $39.99/month, I see that dropping to $29.99 within 6 months and $19.99/month in perhaps 18 months. So that is a 50% haircut in "what they sell" on the residential side in 1.5 years. Plus competition is again..fierce, with very heavily capitalized competitors who have more to offer in "bundling" (theoretically)
Westell, well yes CPE will grow but I just found a press release confirming the post yesterday about sequential decrease yetr again next Q in sales. So if the sector is growing, CPE sales should not be decreasing this early in the game.
Being a supplier is about getting an early lead, building on it, and most important scaling. If you looked at the revenue #'s only from 3 months ago, you could estimate that Westell had narrowed down the lead on Alcatel and Efficient to perhaps 1 to 1.5 quarters... in about 3 months time that lead will be closer to 3 to 4 quarters. They have to re-scale and start all over again and with margin pressure at that point and technology moving to next generation VoDSL it doesnt look good. Cash is also extremely low and that ties their hands on sales intiaitives and R&D intiatives. (all this is my opinion)
If you want to play DSL I'd focus on the chip makers like Globespan, Virata or on the CPE side Efficient or for CPE/DSLAM/everything try Alcatel for a low risk way to play the sector.
These stocks dont trade in a vacuum, you have to view them in light of their competition... Copper Mountain sells to a weakening customer base (CLECs), COVD is a CLEC, and WSTL.. not sure what happened yet.. I surmise the truth will leak out eventually... they have 3 blue chip customers .. not sure what the reasoning is there. But the numbers dont lie.
For the WSTL info
Source: quote.bloomberg.com
Westell Shares Tumble After 2nd-Qtr Modem Sales Fall From First
By Justin Baer
Aurora, Illinois, Oct. 19 (Bloomberg) -- Westell Technologies Inc. shares fell as much as 41 percent after the phone-equipment maker said sales of its high-speed modems fell in the fiscal second quarter from the previous period.
The shares tumbled $3.28 to $5.72 in midafternoon trading after falling to $5.31 earlier today. They have climbed 36 percent in the past year. Aurora, Illinois-based Westell makes equipment used in digital subscriber line services, which connect homes and businesses to the Internet at speeds more than 100 times faster than dial-up modems.
DSL modem sales fell to $49.5 million in the quarter that ended Sept. 30 from $61.9 million in the fiscal first quarter, Westell said in a statement. The company expects modem revenue will drop in the fiscal third quarter, to $30 million to $35 million, Frost Securities analyst Syed Haider said.
``It was a very lackluster performance,'' said Haider, who has a ``strong buy'' rating on Westell. ``Their guidance going forward for at least the next quarter is on a sequential downward trend, so I think that has kind of limited peoples' appetite to get into the stock, even at such a cheap level.''
SBC Communications Inc., the No. 2 U.S. local-phone company and a Westell customer, in June gave its Advanced Services unit responsibility for turning on DSL services to comply with regulatory guidelines for SBC's purchase of Ameritech Corp. The change slowed the pace at which new service could be installed, prompting SBC to buy fewer new modems, Haider said. |
