Corvis (CORV) 6.90 +0.87: This optical networking stock is
enjoying a rare positive day as the Gilder Report shows that it has not
completely lost its influence. Corvis was added to the Gilder list and
is enjoying a modest boost as a result. For the uninitiated, George
Gilder's Technology Report covers the optical sector, and being
added to the "list" had the potential to lift a stock 20, 30, or even 40%
back in the bubble days. Now, with many members of the list down
by 50-90%, the Gilder effect just ain't what it used to be. For those
considering CORV, the good news is that Gilder added this stock
after the 90% plunge rather than before. And there is good reason to
consider Corvis. The telecom equipment segment has been decimated
by the reduction in capex by telecom service providers. To some
extent, companies like Corvis whose next-generation gear can reduce
network costs are insulated, as their products are most likely to
survive in a more selective capex environment. But as Sycamore
(SCMR) shareholders learned last week, much of this next-gen gear
is sold to emerging carriers that are simply running out of money -- it
doesn't matter what you sell if your customers don't have any funds.
Corvis currently has contracts with Williams (WCG), Qwest (Q), and
Broadwing (BRW). The bad news here is obvious: customer
concentration. This is also the good news, as none of these companies
is in financial jeopardy. There have always been two knocks on
Corvis, and they are very much connected. First, the company is
extremely secretive about its technology, generating skepticism about
some of its claims. Second, all three customers own shares in the
company, calling into question their objectivity in assessing CORV's
technology. Because of these issues, adding customers has been and
continues to be a critical factor for Corvis. Rumors of one or two new
customers have been heard for several weeks, but still there is silence
at Corvis. If the Corvis claims are true, its transport and optical
switching products can dramatically reduce network costs, and it
would be unwise to bet against any company that can quickly and
significantly reduce costs for service providers, particularly when that
company targets Tier 1 customers rather than emerging carriers. The
key for Corvis is attracting more customers so that the "if" at the
beginning of that sentence can be removed. Being added to the Gilder
list today was a nice bonus for Corvis shareholders, but being added
to the vendor lists at a few more prominent service providers would
be a much better reason to buy the stock. -- Greg Jones, Briefing.com |
