ONIS might be ready to move:
TheStandard.com
A Thriving Tech Firm, Really
By Cory Johnson
There are examples that disprove the rules. Imagine a stock that has been good to own. Imagine further: It's a telecommunications
company selling its wares to the capital-constrained phone companies. It's an equipment maker that buys silicon, makes boxes
and competes with the likes of Ciena and Nortel, but has seen its stock do twice as well as its competitors' in the past two
months. And - most fantastic of all - the company is adding customers in droves and increasing revenues better than 50 percent
each quarter.
Sounds like the good old days, eh? ONI Systems is proof that spending is still happening, that growth is still
possible. The San Jose, Calif.-based company sells hardware and software that allows telephone companies to
create optical networks in metropolitan areas. Unlike the oversaturated long-haul optical networks, the regional
optical networks are in their infancy. Phone companies are under tremendous pressure to unleash the capacity
of their long-haul networks - the installation of what they call "metro fiber" makes that possible.
As a result, as other companies have seen a dramatic slowdown in equipment sales, ONI has seen sales take
off. "Their success has been impressive," says Thomas Weisel Partners analyst Hasan Imam, who rates the
stock a "buy." "But it helps that their market is still quite small, less than $1 billion. That leaves them plenty of
room to grow," he adds.
Indeed, the combined revenues of Ciena, Nortel and ONI in the metro optical area were less than $158 million
in the first quarter of 2001. Nortel commands a 48 percent market share to Ciena's 27 percent and ONI's 28
percent, according to J.P. Morgan H&Q. But ONI's offerings are focused exclusively on the metro market.
Early last year, ONI had few customers and just $3.6 million in revenues. In addition, skeptical investors thought the firm would find itself overly dependent on a
shrinking customer base. But ONI defied those skeptics and continues to add new accounts. A year ago, the company had just four customers; today it has 21 and
expects to have 28 to 30 by the end of the year. It's adding customers as fast as other equipment providers find their customers going out of business.
Revenues are growing at a marked pace. Last year, ONI had $59.7 million in revenues. It nearly beat that number during the first quarter of 2001 alone, with $45.1
million. Wall Street expects the positive trends to continue, as analysts predict that next year's sales will be six times last year's, rising to as much as $422 million in
annual revenues.
And what of inventories, the Achilles' heel of telecom equipment providers like Cisco, Lucent and Nortel? ONI has in fact been able to lower its inventories, putting
it at much less risk. In the first quarter of 2000, the company had 652 days of inventory on the shelves, but in the last quarter, that was down to 247 days.
To be sure, there is a recession in technology capital expenditures. Information technology spending is down. According to the Bureau of Economic Analysis, IT
spending dropped 1 percent in the first quarter, to $763 billion - the first sequential decline on record. The growing consensus is the market has overreacted to that
marginal slowdown, but the continuing success of companies like ONI Systems belies that fact.
Just as the pendulum swung too far in the direction of exuberance, many on Wall Street believe the pendulum has now shifted too far toward pessimism. Companies
like ONI that are doing just fine don't tell the story of the market, so their stories aren't told. |
