OT: Ian, Thanks for your thoughts on the optical sector. If JDSU and GLW go up 4 times within 3 years that would be about a 60% compounded rate of return. Sometimes there is great opportunity for investors when longer term fundamentals look good, but a wait is involved. The first time I bought AMAT was in 1996. I recall an analyst declaring it dead money for a year, but agreed longer term it was a good stock. Turns out he was wrong, the stock went way up in the course of that next year.
The fiber optic situation is unprecedented I think. The money loaned by companies like Cisco and Nortel to their customers was really a dumb thing, and caused part of this. Also the telecom companies borrowed money from other sources. There is a disconnect between the relatively slow rate of growth in revenues at the telecom companies and the demand for bandwidth, however. I am not sure how this plays out. A high level Corning manager was quoted back in March: "On average we expect demand for bandwidth to increase at more than 100% per year for at least the next 10 to 15 years. " From a Fortune article in March, "Can Corning Find Its Optic Nerve?": "Carriers insist that their fiber installations are justified because data and Internet traffic volume is doubling every three or four months."
The later statement, if correct, implies that any inventory problems in the fiber optics area will be corrected quicker than one might expect. In the case of Corning, however, it is hard to figure because existing fiber can be used more efficiently by splitting the light into many wavelengths. However, a recent Corning press release stated that their new premium fiber allows carriers to buy lasers that are 1/2 the cost because the fiber is more efficient. Also, there are fiber sales to countries such as China, and fiber is also being deployed in cities (as you pointed out), including "last mile" sales to corporations. Eventually fiber may go right to the home, which would also add to revenues.
Thanks again for your comments. I hope you are right about the returns we can expect from these levels.
John |
