I hope you're right. Looking at the recent HUGE stock run up on LU it's hard to believe it will just keep on truckin'
Here is my company's analysis as of May 6 1998 :
New Products, Continued Market Leadership
-- Research Notes
Subject: Lucent Technologies
(LU--$73 1/8)--NYSE Opinion: BUY
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Date: May 6, 1998
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Market Profile
52-Week Range $79-$29 | EPS Growth Rate (3-5 Yrs.) 25%
Avg. Daily Volume 8,051 M | ROAE (LTM) 16%
Shares Outstanding 1304.0 MM | Debt to Total Capital 44%
Market Capitalization $95,355 MM | Book Value Per Share $3.58
Floating Market Cap. $84,866 MM | Indicated Dividend/Yield $0.16/0.22%
Institutional Owner. 41% | Revenue (LTM) $28,154 MM
Insider Holdings 11% |
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Earnings/Share Fiscal Consensus Fiscal
1Q/Dec 2Q/Mar 3Q/Jun 4Q/Sep Year Est. # P/E Ratio
------ ------ ------ ------ ------ --------- ---------
1997 $0.68 $0.05 $0.17 $0.29 $1.17 61.6x
1998E 1.72A 0.14A 0.23 0.38 1.62 $1.61 44.5x
1999E - - - - 2.00 $1.91 36.0x
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Highlights:
- New high speed, ADSL products for users to tap Internet and data.
- New DSL chip sets for high speed data using today's analog modems.
- New voice-over-Internet Protocol (IP) portfolio announced.
- Growth and market share gains supports Lucent's premium valuation.
- Our 12-month price target remains $90.
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Refer to Company Update Report dated May 1, 1998
NEW PRODUCT ANNOUNCEMENTS:
Lucent announced several new products at the Las Vegas NetWorld+Interop trade
show. The company continues to innovate and launch commercial products in all
lines of business. We are impressed with Lucent's focus and intensity to drive
leading edge products. Management deserves a lot of credit for pushing the
organization.
Lucent is giving service providers access products with megabit plus speeds
that will delight their customers' Internet experience. Competition from cable
modems and direct broadcast satellite will keep pricing very competitive. RBOCs
and other ILECs have no room for caution or planned second looks at introducing
Lucent products.
NEW HIGH SPEED ADSL PRODUCTS:
Using ordinary phone lines, Lucent introduced WildWireTM IP ADSL Access System
that allows service providers to give small business and home office users the
simultaneous delivery of a second voice line and up to four data lines. This
turns a single existing phone line into a broadband "mini-network." There are
no dial up problems, busy signals or disconnects, because the ADSL connection
is always on. WildWire gives users more than 25x faster than today's fastest
analog modem at 56 kb/s. ADSL stands for Asymmetric Digital Subscriber Line
technology.
Say hello to 1.5 megabits per second, and say goodbye to ISDN 128 Kb/s
services. The RBOCs missed a big one with ISDN installed in over 95% of their
networks in the last few years. Slow marketing, poor packaging and pricing led
to total confusion for the end user. Today, ISDN would be a major embarrassment
for the RBOCs on transmission speed versus competing cable modems, direct
broadcast satellite and IP networks transmitting well above one megabit per
second. What a missed window of opportunity for the RBOCs, but a new and bigger
ADSL market potential for suppliers like Lucent.
WildWire is the first IP over ADSL solution using the same vendor from the
central office and user site. The plug in at home is a Lucent Personal Media
Router and the a Digital Subscriber Line Access Multiplexer (DSLAM) in the
central office.
Of course, the product was developed by Bell Labs. What is even more
impressive is a commercial product launched in less than 6 months from a
concept. Lucent will enter production for general availability at the end of1998.
Alcatel does have a competing ADSL product. Today, Cisco, Dell Computer and US
West will announce formal plans to roll out PCs with ADSL modems that work over
the RBOC's copper telephone wires. Dell will make Cisco's ADSL modems available
in the Dimension XPS PC. GTE has an internetworking agreement with Cisco.
Lucent needs big orders from Bell Atlantic, SBC and Ameritech which are its
three biggest US customers. ADSL modem standards are likely to be backward
compatible to Lucent or Cisco.
NEW DSL MODEM CHIP PRODUCT:
Lucent Microelectronics Group announced a new Digital Subscriber Line (DSL)
chip that can download at 1.5 megabits per second. The WildWire chips converts
analog telephone lines into digital lines by adding a line-interface devise at
the central office and a DSL modem at the user's home. There is no hassle of
installing a dedicated digital line. Of course, getting the 1.5 Mb/s is subject
to the ILEC's outside line conditions.
We believe the DSL modem will add to Lucent Microelectronics leadership in
modem chips to PC manufacturers with 40% market share of the world's modem
equipped PCs. WildWire means no more mess with phone companies installing
additional telephone wiring or voice/data splitters at the home to separate
voice and DSL channels. Lucent will begin shipping sample chip sets in the
third quarter of 1998. WildWire chip sets are major break through of
convenience and all day use for Internet services.
What is the WildWire chip set? A digital signal processor that consists of a
Lucent 1690 DSP, an ADSL codec and an analog modem codec. The DSP 1690 uses 2
Lucent DSP1600 cores on a single chip operating at 200 MIPS and consuming only
1.5 watts of power.
For service providers, Lucent Switching and Access Group will offer
"application packs" that plug into its switches and digital loop carrier
equipment to allow these parts of the network to communicate with WildWire-equipped
PCs.
The timing is perfect for the commercial launch of the 5ESS-2000 Switch,
AnyMedia Express System and AnyMedia Access Platform to be shipped late 1998 .
These products are designed for a variety of narrowband and broadband data
access devices.
Nortel does have a competing one megabit modem product. Not a secret in the
industry, but not pushed as aggressively to service providers or end users as
it should have been.
VOICE-OVER-IP PRODUCTS:
Lucent announced two enhanced voice-over-IP products; a mixed media
applications server and an Internet telephony gateway.
The MMCX 2.1 conference server is about mix-media desktop conferencing. It extends multi-party media to a broad array of connections including ATM, wireless LANS, remote access and H.320 and H.323 "fully standard-compliant" end points. Lucent is making the product affordable on a "per-seat cost" as low as $130 with free software installation via CD. The MMCX 2.1 can support as many as 500 users per server. The MMCX 2.1 supports Microsoft Windows PCs, UNIX workstations and telephony-based endpoints. Lockheed Martin is already using MMCX 2.1 for the joint strike fighter.
ITS-SP 2.0 stands for Internet Telephony Server for Service Providers (ITS-SP)to route voice and fax over the Internet with wireline reliability and quality. There are access manager features to create zones for managing multiple gateways. There are product features for central management, security, custom applications, and routing management to alternative data networks or public switched network.
INVESTMENT THESIS:
We believe Lucent shares will appreciate to match its attractive earnings outlook. We have a bullish two-year earnings forecast. Earnings in 1998-1999 should grow in the mid-20% range, which would exceed the growth rates of most of Lucent's peer group. So far, management has exceeded investor expectations, but the bar continues to be raised in terms of strategic and financial expectations. This quarter again there are many earnings disappointments in the telecommunications equipment sector. And yet, Lucent's track record remains strong but carefully watched by the market with the stock trading at record levels. We remain bullish.
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