Witt Soundview knocks STLW big-time.
The following links to a Witt Soundview report of 1/3/01 that is highly critical of STLW's product, management, and future business prospects. It suggests or implies --
(1) STLW recently lost a Cisco contract that was generating 26% of STLW's business;
(2) STLW was manufacturing parts considered unsatisfactory by Cisco's customers, causing them to substitute a part made by other manufacturers; and
(3) STLW made design changes to the part without notifying Cisco as required by the Cisco contract and thereby disqualified itself as a future contractor.
In fairness, I note the Witt report makes no mention of having contacted Stratos or for that matter Cisco in an effort to confirm the allegations.
I am posting a reproduction of the report here with hope that someone can verify or refute these most serious allegations. STLW ought to issue a formal statement one way or the other because if true this definitely is a material event and if false it needs immediate correction.
institutions.witsoundview.com
(Adobe Acrobat needed)
Reproduction of the Witt Soundviw report:
In conducting our business checks over the last few days, we believe we have uncovered an important customer problem for
Stratos Lightwave at Cisco. Cisco has been a significant customer for Stratos accounting for 26% of revenue in the fiscal year ended April 2000 and we believe tracking near that same level in the first six months of fiscal 2001. We believe the problem has lead to a disqualification of Stratos as a gigabit interface converter supplier (GBIC). Customer disqualification is not a simple problem to overcome. It is unclear to us just how much of the Cisco business with Stratos is put in jeopardy by this disqualification because we are not close to the company.
From what we have been able to piece together, Stratos did a redesign of its short wave GBIC board. That redesign should
have triggered a notification to Cisco and a subsequent audit of the board for requalification. We believe the notification was never made and customer operational issues may have subsequently surfaced which drew the board change to Cisco’s attention. That sort of event is not likely to be taken lightly by Cisco and a rebound from the disqualification may be tough.
Execution Can Make a Difference:
For over two years the optical opportunity has been a rising tide for industry participants. In the current market
environment, investors seem to fear the tide is ebbing and every participant is headed for trouble. We do not believe that will prove the case even in a more difficult economic environment. We have singled out Finisar as one of the companies that has a decent chance of navigating the economic mine field investors fear is lying ahead of them. The company has a strong record of profitable growth over the past 12 years. It is respected by both customers and suppliers and appears to deliver value in a transceiver market many fear is a commodity business.
Cisco has not been a Finisar customer for optical transceivers. The company has always contended it would eventually break into Cisco as a supplier. A few months ago the company related to investors that some Cisco customers had actually been stuffing Cisco boards with Finisar GBICs because of operational issues with GBICs that came with the boards. That has not likely gone unnoticed by Cisco and should give Finisar an inside track on picking up the Stratos pieces.
Other Potential Beneficiaries:
Getting all the facts in a situation like this can be challenging and therefore predicting the beneficiaries can be flawed. Agilent, Excelight, IBM, Infineon, Luminent, Molex, Optical Communications Products and Picolight all provide transceivers to the equipment supply industry. Because the product is a short wave GBIC, we believe the most likely potential winners are Finisar as we have noted and Picolight. Because of Finisar’s larger size and the customer substitution success, Finisar should be in a very strong position. |
