Incredibly positive note. Especially the parts about stealing share away from the incumbents (T, WCOM, Q,...).
Fez
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Deutsche Banc Alex. Brown Inc.
11 July 2001
HIGHLIGHTS:
* Yesterday GX/AX was selected by the Department of Defense (DoD) to provide networking capabilities to the Defense Research and Engineering Network (DREN). The three year Commercial Services contract is valued at $137Mn but may reach up to $400Mn over a potential 7-10 year life.
* We believe Global Crossing won the RFP over such competitors as FON, T, WCOM and Q. It is our understanding that this contract was previously awarded to AT&T on 7/16/96 and was valued at $430Mn. Contract win highlights a fact which we have reiterated continuously - GX continues to take share away from the Big 3 as they face internal issues. We believe, the DoD has informally indicated that GX, a 3 year old company, is as good, or in this case better, than the Big 3 or any other emerging player, based on their rigorous standards.
* It is our opinion that possibly the most technologically advanced and demanding client, the DoD, has now validated the GX strategy. Additionally, we believe the DoD has been convinced of GX's long term viability by performing its own financial analysis (eliminating bankruptcy/liquidity concerns) to support an expensive transition to a new network which will undoubtedly carry highly sensitive information critical to national security. Recall from our Backstage Pass conference, that switching carriers by displacing the incumbent (AT&T) is a costly undertaking which rarely occurs, thus this win is highly significant for GX.
* We believe GX won the contract due to their ability to provide security and reliability over a technically advanced network - thus a superior solution to that of T or any other competitors. Recall, the DoD's networking group is
actually the purveyor of ARPANET (Advanced Research Project Agency Network), the early version of todays Internet and is highly adept at understanding networking technology.
* GX will provide ATM, IP and wavelength services over a VPN initially in the US. DREN is a highly secure network linking 6,000 scientists across 4 major resource centers and over 100 distributed government, commercial and university sites, allowing research collaboration. DREN currently consists of DS3 to OC48 capacity, which we believe will eventually expand internationally through the
GX/AX global network. (Further info on DREN: www.hpcmo.hpc.mil/index.html)
* We are reiterating our Strong Buy rating on the shares of GX with a 12 month target of $30 based on our 10 year DCF. We believe this contract with the DoD validates the company's strategy and should easily counter irrational reports of liquidity/ bankruptcy concerns at GX, in our opinion. We expect GX to report 2Q01 earnings on 8/1/01. |
