This is more of a myopic view.
a) Vendors like NT/LU/ADCT are finding it difficult to
maintain there own optical component R &D, give that the
boom years are over. The model used now is to decrease costs ie. outsoucre, to likes of JDSU that are independent. There is no need of carrying inventory, hire engineers and the fixed cost. The business is evolving similar to IC's. Now, PMCS/AMCC/VTSS/MRVL etc all manufacture chips for vendors like CSCO. It make's more sense for systems vendors like NT/LU to focus on systems and not componetns.
b) Yes, the business of Agere has changed dramatically. Why?. Because their main customer was LU. Lucent's optical business was tied to Agere, up until recently when it got spun off. So, Agere only reflected LU's health. I agree that the Long Haul core has been impacted, but there is the metro, access, regional where Agere has no product. Secondly, it is too late for Agere to proposition other system players at this point in time for future design wins for generic components, since Agere's products were more tailored to LU. So what does one do?. The decision is right to get out of a market long haul, with no product in the metro this aided the exit. Lucent's lambda router also was killed....
c) As, LU/NT/SYCM/ etc all outsoure who will they outsource it to?. A small player or an established player. It is a no brainer that JDSU will gain market share...
d) More optical componets will just go belly up, because technologies like MEMS are just far out now, and good research dollars will be focused on anything that reduces cost. Start up's are not getting VC money here on 495 in MA.
So, this will trigger consolidation at the component vendor level {e.g. avanex, oplnk}. Focus in R&D will be near and medium term, and finally maybe 2-3 strong vendors will emerge. This would improve gross margins, and a near pre bubble monopolistic pricing capabilities for the survivors.
e) But what about the end market?. Is the long haul dead?. Not to me. Some routes have capacity, some are at 60% utilization during the current recession. The routes that have excess capacity are not major routes. If the economy recovers, traffic will increase. Gige Ethernet at the enterprise level will follow, that would suck up bandwith. Regional and metro buildout will increase data traffic. Then there is more wireless traffic and a possible 3G introduction. Add, in some unknown application that sucks bandwith and we have more traffic. Long haul is not dead in China/India, etc. These countries need to build out there long haul networks. India just installed a NT optical swith for long haul last week. So, we have the international factor omitted completly... So, what about quest, worldcom,etc. Assests will be picked up by survivors at dirt cheap prices, or maybe a bankrupt company will re-emerge free of debt and will finally figure out that they could make profits now that the debt has been wiped clean. This will spur investment. Then there is the FCC which could super charge the local loop. The RBOC's have money, the end market needs fast access {check out the growth rate of dsl}. If the FCC invigorates the local loop that is another positive.
In a nutshell, these articles give you a sense of doom and gloom. In my opinion, the risk/reward factor with JDSU is really good. I have been picking up JDSU. As an engineer
I have given all the above stated to take appx 2 years. I have the patience, and we could make a killing on JDSU. Even if you take the pre 1996 level of growth i.e. 10-15% each year for networking we could easily see JDSU at atleast $10. That is a 4 bagger. What is being reflected in the price is uncertainity not the true fundamentals which are good in the medium to long term. Happy investing...
Cheers Immi |
