akmike,
This guy seems to agree with you. I just think it is too soon to be buying.
************
The Right Side of the Nortel Panic
By Don Luskin
Special to TheStreet.com
Originally posted at 9:11 AM ET 2/16/01 on RealMoney.com
After Nortel Network's (NT:NYSE - news) bombshell last night, it's all too easy for the network bears to say "I told you so," and for the network bulls to say "I was afraid of that." The first reaction is going to be to sell everything and anything that has anything to do with networking, especially optical networking.
But don't be so hasty. There is bathwater and there are babies. At the opening this morning investors are going to be throwing out both. That's an opportunity to pick up some babies at bargain prices.
The opportunity is going to arise because investors misunderstand the dynamics of carrier spending cutbacks. Yes, they are very real and very dangerous for the sector. But my partner Dave Nadig who lives and breathes this stuff believes that the real dynamic that will move the market over the intermediate term is the drive not to spend less, but to spend better. For Nadig, it's all about efficiency.
Nadig says that means that any big networker -- the Nortels, the Lucents (LU:NYSE - news) and even the Ciscos (CSCO:Nasdaq - news) of the world -- are going to get slammed. They're the ones whose warehouses are stuffed with yesterday's technology, with bloated all-things-to-all-people systems that don't take advantage of the very latest technologies for squeezing every bit of bandwidth out of every carrier capex dollar. These companies all have stuff for the new age: OC-192 loops, 10-gigabit ethernet, waveguides and so on. But they also have a base of legacy business that will be under intense pricing pressure which at best migrates out of their legacy products and into their new stuff.
In Nadig's crystal ball, the winners are those companies who exist solely to increase the efficiency of the network: his short list consists of Sonus Networks (SONS:Nasdaq - news), (AVNX:Nasdaq - news), ONI Systems (ONIS:Nasdaq - news), New Focus (NUFO:Nasdaq - news), Avici (AVCI:Nasdaq - news) and Corvis (CORV:Nasdaq - news). And yes, Ciena (CIEN:Nasdaq - news). There are some scary, small-company-big-dream names in there, and that's what you'd expect. These are companies with minimal legacy business -- for better and for worse, they are all about the future. Every move toward the next generation is incremental business to them.
How about a big diversified component supplier like JDS Uniphase (JDSU:Nasdaq - news)? Nadig is concerned that a move toward efficiency shrinks the component market in the short term, so Uniphase could be hurt. After all, in some sense the whole point of efficiency is to use fewer commodity components, if you can get away with it. One response from Uniphase might be to acquire a next-gen component maker like New Focus, now that they've closed on their SDL acquisition -- but that would be tough on the short term, too.
But in the long term, Uniphase should benefit. When the investments in network efficiency bring down the unit cost of bandwidth, whole new markets will open up and the spending spigots will have to open again to meet the increased demand. That dynamic has described the boom-and-bust business in high tech products for decades.
So today, be smart -- not afraid. Not all networkers are created equal. If they all get marked down equally, you've got an opportunity.
--------------------------------------------------------------------------------
Don Luskin is President and CEO of MetaMarkets.com, and a portfolio manager of OpenFund. At time of |
