Silicon Valley: Vitesse, Applied Micro Strangely Slammed in Ciena Selloff
thestreet.com
By Marcy Burstiner
Staff Reporter
8/18/98 3:16 PM ET
SAN FRANCISCO -- When Ciena (CIEN:Nasdaq) fell 24%
Friday, some investors reasoned that, since the shin bone's
connected to the knee bone, networking chip makers like
Vitesse (VTSS:Nasdaq) and Applied Micro Circuits
(AMCC:Nasdaq) would also suffer.
They reasoned wrong, but the chip makers' stocks still
suffered.
Vitesse fell 8% and Applied Micro tumbled 6% Friday on
news that Ciena would post disappointing third-quarter
earnings and that it lost business with AT&T (T:NYSE).
Fund managers and analysts alike were hearing the same
knee-jerk reasoning: If AT&T dumped Ciena then it follows
that Ciena, which makes fiber-optical products, would cut
back business with suppliers Vitesse and Applied Micro.
And two trading days later, the market was still buying that
logic, at least for Vitesse. On Monday, Vitesse dropped
another 3% before stabilizing, while Applied Micro rallied to
gain back 7%. Tuesday afternoon Vitesse was trading up 2
5/8 at 35 1/4, while Applied Micro was up 1/4 at 35 7/8.
Problem is, neither chip company is dependent on Ciena.
Applied Micro responded to the news with a shrug. "We do
supply to Ciena, but we are in the early stages of the
relationship with them," said spokesman Bill Berridge. "If
that business didn't exist it wouldn't have any significant
impact on our revenues."
At Vitesse, which didn't return calls, Ciena accounts for less
than 1% of sales.
NationsBanc Montgomery Securities analyst Clark
Westmont (his firm has no underwriting relationship with
Vitesse and helped underwrite Applied Micro's IPO in May)
is dumbfounded: "Anyone who would sell the stock on the
Ciena news doesn't know what they own."
In fact, the slide was just what the doctor ordered for fund
managers who have been kicking themselves all year for not
buying Vitesse last December. Vitesse, which is French for
"speed," makes networking chips that are used to connect
fiber-optic lines to traditional phone lines. The fortunes of
fiber optics are so bright that Vitesse's stock had risen, by
Thursday's close, 116% to 36 year-to-date. Even for fans of
the stock, however, the company's price-to-earnings ratio of
61 was quite rich.
William Hakes, executive vice president of $100 million
Statistical Advisers fund, bought Vitesse in January 1996,
and sold it at the end of last year at about 25. Now, he's
eyeing it for a new hedge fund if it sinks near 30. "If it pulls
back another couple of points, we will get back in," Hakes
said.
Vitesse is much more dependent on Lucent (LU:NYSE),
which accounts for 20% of its sales, than Ciena. "Vitesse is
the only vendor to both Lucent and Ciena so they get it
coming and going," said Tim Kellis, an analyst with Adams
Harkness & Hill. Kellis, whose firm has no underwriting
relationship with Vitesse, has a buy rating on the stock.
Since Ciena's loss will likely be Lucent's gain, any dip in
orders from Ciena will quite possibly be made up with an
increase in orders from Lucent.
See Also
SILICON VALLEY
Love Is in the
Airwaves for
WinStar
8/14/98 12 PM
SILICON VALLEY
Global
Crossing
Seeks Safe
Passage
8/13/98 12 PM
SILICON VALLEY
Adobe Puts
Up a Brick
8/12/98 11 AM
SILICON VALLEY
ARCHIVE
Vitesse
Company
Quotes
Applied
Micro
Company
Quotes
Ciena
Company
Quotes
c 1998 TheStreet.com, All Rights Reserved.
TOP | ABOUT US | CONTENTS | SUBSCRIBE | ADVERTISE | TRADE ONLINE | FEEDBACK | SEARCH | HELP
|
