Corvis Corporation (CORV)
CORV: Grooming Switch Is Not Likely To Have An 1S (Buy, Speculative)
Impact On 2001 Results Mkt Cap: $2,052.0 mil.
April 16, 2001 SUMMARY
* Light Reading detailed Corvis' progress on its
TELECOMMUNICATIONS O-E-O switch derived from technology obtained from
EQUIPMENT its BayLight Networks acquisition.
B. Alexander Henderson * The proposed product would compete most directly
with Ciena's CoreDirector product, providing a high
density switch with STS-1 grooming capabilities.
Timothy Anderson * Strategically, the product makes sense as it
increases Corvis' addressable market and provides an
entry point for initiating new customer
relationships to whom they can sell their other
optical products.
* While we think this development effort is interesting, it is unlikely to have any impact on financial results until 1H 2002 at the earliest.
* The biggest hurdle that this product faces is time, itself, as CoreDirector momentum threatens to take away a sizable portion of the market before
Corvis can market a finished product.
FUNDAMENTALS
P/E (12/01E) NA
P/E (12/02E) 135.0x
TEV/EBITDA (12/01E) 15.6x
TEV/EBITDA (12/02E) NA
Book Value/Share (12/01E) $7.29
Price/Book Value 0.9x
Dividend/Yield (12/01E) $0.00/0.0%
Revenue (12/01E) $315.0 mil.
Proj. Long-Term EPS Growth 60%
ROE (12/01E) NA
Long-Term Debt to Capital(a) NA
(a) Data as of most recent quarter
SHARE DATA RECOMMENDATION
Price (4/16/01) $6.75 Current Rating 1S
52-Week Range $108.06-$5.00 Prior Rating 1S
Shares Outstanding(a) 304.0 mil. Current Target Price $12.00
Convertible No Previous Target Price $12.00
EARNINGS PER SHARE
FY ends 1Q 2Q 3Q 4Q Full Year
12/00A Actual ($0.10)A ($0.07)A ($0.07)A ($0.07)A ($0.31)A
12/01E Current ($0.06)E ($0.06)E ($0.06)E ($0.04)E ($0.21)E
Previous ($0.06)E ($0.06)E ($0.06)E ($0.04)E ($0.21)E
12/02E Current ($0.01)E $0.00E $0.02E $0.03E $0.05E
Previous ($0.01)E $0.00E $0.02E $0.03E $0.05E
12/03E Current NA NA NA NA NA
Previous NA NA NA NA NA
First Call Consensus EPS: 12/01E ($0.23); 12/02E $0.03; 12/03E NA
OPINION
On April 12th on Light Reading, there was an article posted on Corvis'
progress on developing a product to go head-to-head with Ciena's
CoreDirector. This O-E-O switch is the product of technology of technology
obtained from Corvis' acquisition of Baylight Networks in 2000.
Strategically, we think this move makes sense from Corvis' perspective.
First, its complementary to the vendor's existing portfolio as this switch
feeds traffic into Corvis' existing portfolio of core products. As a result,
the vendor can now offer a more comprehensive solution to customers spanning
from the core of the core to the edge of the core. Secondly, Corvis can use
the new switch as an entry point of initiating new customer relationships, a
key challenge the company has struggled to overcome in recent quarters.
At the Optical Fiber Communications Conference, we had an opportunity to
spend a great deal of time with the Chief Operating Officer of Baylight,
Geoffrey Dive. We think the product is interesting given that its allows
service providers to move express traffic optically at the edge while
performing grooming only when needed, improving network performance and
lowering cost. Our take from our discussion, however, is the product is
likely to remain in development throughout the end of the year. As a result,
we view this product launch as a 2002 story at the earliest and hopefully we
will receive additional updates either during Corvis' upcoming earnings
conference call or other upcoming industry conferences such as SuperComm.
We are impressed with the positioning of this product. It is designed to
incorporate two switch fabrics one for O-O-O traffic in an "express lane" and
one for grooming of O-E-O traffic. In essence, the device can provide the
functionality of the Corvis gateway and provide a continuation of the all-
optical backbone through traffic across the edge of the long haul network and
into the metro core. This greatly improves throughput and lowers
provisioning costs while also providing added network flexibility |
