Guess what guys...comments on Chet? Perhaps he is a contrarian indicator, and hence the stock action today?
CHET WHITE (Mr 158 a share target) is BACK.......
601 Montgomery Street Suite 1800 San Francisco, CA 94111 Ph:(415)248-5600 Chet White June 19, 2003
(310) 545-5484
cwhite@merrimanco.co
Industry Update: Shedding New Light in Optical Access
Yesterday, Cisco spoke at the Weisel conference and reviewed its six top growth markets: IP telephony, security,
wireless, storage, optical, and home networking. The incremental piece of the call was the addition of optical to the
list of the high-growth markets. As we stated in our initiation in January, we believe that the optical edge market is
heating up driven by a recovery in broadband and business growth. In addition to Cisco’s recent addition of optical
back to its growth list, other positive indicators of an optical recovery include:
• Increased demand in the broadband markets: Driven by Verizon’s recent price decrease to $39.95 per
month for DSL, we believe that an up tick in spending in both the DSL and Cable markets is likely. Our
recent checks with vendors such as Terayon indicate that it has seen a material increase in interest in its
2.0 CMTS solutions. We believe that cable vendors are finally moving toward deploying advanced
services as a way to fend off a price war with DSL.
• New spending on FTTH: Driven by the recent deregulation of new builds for the ILEC’s, the three
remaining bells are also putting the final touches on a FTTH program. While the RFP is just in its early
stages, we believe that the size of the contract is in the $500 million to $1 billion range. Previous leaders in
the FTTH and FTTC rollouts are Marconi, MRV Communications, and several private companies.
• Increasing channel chatter: Our channel checks coming from the CeBit in NYC also indicate several of the
smaller transceiver vendors are seeing incremental interest in their businesses. While many of the obvious
plays have already made material moves such as JDS Uniphase and Avanex, other smaller suppliers are at
more reasonable valuations such as Finisar and Stratos Lightwave.
• Other companies to benefit: Other companies that should benefit from the recovery in optical include
Nortel, Ciena, Sycamore, and Sorrento. We would note that Nortel is the dominant player in optical
networking and currently trades at 1.2x PSR versus Cisco’s 6x PSR.
Public companies in this report include:
Avanex Corp. (NASDAQ: AVNX $3.88, not rated)
Ciena Corp. (NASDAQ:CIEN $5.24, Neutral)
Cisco Systems (NASDAQ: CSCO $18.78, Buy)
Finisar (NASDAQ:FNSR $1.80, not rated)
JDS Uniphase (NASDAQ:JDSU $3.83, not rated)
Marconi Corp. (ADR: MORIY $11.35, not rated)
MRV Communications (NASDAQ: MRVC $2.30, not rated)
Nortel Networks (NYSE: NT $3.10, Buy)
Sorrento Networks (NASDAQ: FIBR $2.77, not rated)
Stratos Lightwave (NASDAQ:STLW $5.21, not rated)
Sycamore Networks (NASDAQ: SCMR $4.08, Neutral)
Terayon Systems (NASDAQ: TERN $2.67, Buy)
Verizon (NYSE: VZ $40.15, not rated) |
