>I bought more shares after this great piece of news on thestreet.com,
>and was going to post it here, too.
here it is, without permission, natch. (given it's a subscriber service, i haven't linked it.) it's a beauty. however, if it's too lengthy for you, at least take it in the last paragraph.
Silicon Valley: H&Q Conference: Advanced Fibre Wows 'Em
By Eric Moskowitz
Staff Reporter
4/30/98 7:58 AM ET
SAN FRANCISCO -- Forget Yahoo! (YHOO:Nasdaq). And enough with Amazon.com (AMZN:Nasdaq) already. The hot stock at this year's Hambrecht & Quist Technology Conference is Advanced Fibre Communications (AFCI:Nasdaq). "It's the one must-see stock this year," says Morton Cohen, chairman and chief executive of Clarion Partners L.P.
Advanced Fibre is a fast-growing telecom equipment maker that makes next-generation digital loop carrier systems for small markets worldwide. Huh? All right, how about English: AFCI helps companies use multiple digital phone lines. Last year, AFCI doubled its revenues to $267 million from $130 million in 1996, and so far this year its stock has shot up 45%.
What have investors really buzzing, however, are the company's aggressive international plans for its new products, especially in wide-open markets such as China and India. "They have some major international deals in the pipeline that are not priced into the stock," says Dan McKelvey, money manager at Forte Capital. "For these third-world countries, setting up an office's local loop lines to link up PCs is the first logical step."
Advanced Fibre CFO Peter Darbee highlighted the company's growing presence abroad time and time again during his Wednesday morning presentation -- AFCI currently has 35% of its sales outside the U.S. "We feel that China is ready to have a large amount of acceleration," says Darbee. The company in its research notes noted that it has "revenue possibilities with 11 Chinese telephone companies" in the works.
One of the more interesting stories is how the company has been taking so many orders from customers in South Africa that rival Teledata (TLDCF:Nasdaq) -- which had totally owned that market -- is now crying foul. "We are working on sharing the market," says a diplomatic Darbee, who clearly impressed investors with his speech.
"The company management is just superb," says Sonia Lamoreaux, a private investor who lives in the backyard of Advanced Fibre in Marin County. "While the price has gotten a little steep, I'm sticking with it." Lamoreaux, who bought into the stock at 25 7/8 and has been meeting with the company for some time, said the breakout session -- which is off-limits to the press -- was also rather interesting.
"It was packed, and the company said that volume should really pick up in the second half when it moves into the market for setting up multiple phone lines in individual homes," says Lamoreaux. A volume pick-up would be pretty impressive for a company that just turned in 125% year-over-year earnings growth, and one money manager TheStreet.com spoke with isn't so sure that Advanced Fibre can keep it up. "There are some risks for them in building up relationships with the [regional Bell operating carriers] and these foreign countries," says Charles Greene with Wells Capital Management, a San Francisco-based money management firm. "That's something you need to at least consider with a company priced this aggressively."
Advanced Fibre is trading at 55 times 1998 earnings estimates of 75 cents a share. The stock closed Wednesday at 41 3/4, down 5/8. One way to maintain growth rates is to acquire companies. Interestingly, in the breakout, notes Lamoreaux, the company said it was looking into mergers and acquisitions to build adjacent technologies.
Advanced Fibre, long a mainstay in regional markets, is now attempting to not only get into homes, but into large urban areas with its Universal Modular Carrier 1000 (1,000 lines) and its next-generation UMC 2002 both here and in such countries as China, France and Brazil. "This allows us to get into the larger company environment," says Darbee. Previously, the company's biggest product could only route 672 lines in a space.
One potential pitfall? Getting paid. In the breakout, Darbee pointed out that the company's Brazilian telco partners either would pay in cash or pay Advanced Fibre in 350 days. "That could create some problems with earnings," says Lamoreaux.
The key, then, is whether Advanced Fibre can sustain its impressive growth rate. Darbee seemed to convince the SRO crowd that the company could continue its torrid pace, because he even had the shorts in the room on the defensive, reports Lamoreaux. "Shorts may have their comeuppance," warned Darbee, adding that he was comfortable with estimates for the year. Then, a guy in the back called out: "Would all the shorts please stand up?" No one did. |
