Barrons - part 2
by: prettyr98
44710 of 44741
In 1998 alone, revenues in the DWDM market grew 70% to $1.7 billion, from $1 billion the previous year, according to San Jose, CA-based Dataquest, a unit of The Gartner Group.
New products coming on stream from Ciena should help meet that demand. Its state-of-the-art 96-channel system, due out later this year, will be by far the largest commercially available system. Most competing products -- even from such technology heavyweights as Lucent Technologies and Northern Telecom -- have only 16 channels, and Ciena already dominates the market for 40-channel systems. (Ciena also works closely with Cisco Systems on another promising technology called Internet Protocol Over Glass.)
Even bulls like Kedersha concede that recent good news -- including a series of positive earnings surprises -- is reflected to some degree in the stock price. But he expects the shares to move higher still as Ciena signs up new customers.
At current prices, Ciena is trading at pretty high multiples -- nearly 100 times First Call's earnings estimate of 26 cents per share for the fiscal year ending October 1999 and at 38 times the fiscal 2000 estimate of 66 cents a share.
But earnings are expected to grow by more than 150 percent next year. And Ciena's 32% projected long-term earnings growth rate is much higher than that of other fiber optics providers and four times that of the S&P 500, according to Zacks. BT Alex. Brown has a price target of 30 to 35 for Ciena stock over the next year to 18 months.
Of course, the company still has some big challenges ahead -- diversifying its customer base and keeping ahead of the technological curve while fending off pricing battles with giants like Lucent and Nortel at the low end of the DWDM market.
But the real billion-dollar question is whether Ciena ultimately can go it alone. The company did agree to be acquired by Tellabs before the deal fell through, and though management is mum about the issue now, chances are they would entertain a good offer.
Meanwhile, over the last few weeks, several European telecommunications companies have snapped up smaller American firms for their data networking expertise and U.S. presence. On February 24, Alcatel announced its purchase of Xylan. And on Tuesday, Siemens confirmed its plans to buy two networking companies. The pros think Ericsson may be next in line to make a bid.
"For any major European telco company that doesn't have a DWDM product, like Ericsson or Alcatel, [Ciena] would be a good platform," says Silverstein.
And with many of the usual suspects already rounded up, Ciena would appear to be a logical choice -- for someone other than Tellabs, of course.
Posted: Mar 10 1999 8:17PM EST as a reply to: Msg 44709 by prettyr98
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