ahhaha,
You appear to be well-versed in communications---both from an investment perspective and also in your writing. -g- I know many consider your diatribe a bit difficult to interpret, but I find them entertaining and enlightening.
If you don't mind, I would your thoughts on UNPH, ETEK, and SDLI.
Here is the writeup from thestreet.com from today and some older stories on SDLI. ETEK is a recent IPO.
Thanks.
mike
Communications' Biggest Bottleneck
By Kevin Petrie
Staff Reporter
03/15/99 11:12 AM ET
thestreet.com
Faster is better. That's why fiber-optic networks, brimming with rivers of email
messages and Web pages, are looking for ways to squeeze out more bandwidth.
Companies such as Ciena (CIEN:Nasdaq), Alcatel (ALA:NYSE) and Lucent
(LU:NYSE) are working on a number of products to pack more light waves into each
optical fiber.
The result is a backlog of orders for the optical components built by Uniphase
(UNPH:Nasdaq), its merger partner JDS Fitel (JDS:Toronto), SDL (SDLI:Nasdaq)
and
E-Tek (ETEK:Nasdaq). Their arcane pump lasers, filters and amplifiers are the
scarcest technology in the communications business.
"We're ramping manufacturing as hard as we can, but at the same time demand
continues to grow," says Kevin Kalkhoven, CEO of Uniphase, a leading builder of
several components based in San Jose, Calif. "That's our biggest challenge right
now," echoes Donald Scifres, CEO of SDL, a maker of pump lasers based in San
Jose, Calif.
Both Uniphase and SDL have more than doubled their unit output in the last year.
The stocks are breathing some rarefied air on Wall Street. Uniphase shares cracked
100 Thursday, then settled to 99 7/8 at Friday's close. Uniphase has gained roughly
200% since October and increased by more than 10 times since 1995. Its merger
partner, JDS Fitel, has quadrupled since October on the Toronto exchange. SDL has
more than quintupled since October and added 2 1/16 to end at 65 3/4 Friday.
Analyst Raj Srikanth with First Albany predicts that sales of optical components will
jump from $1.8 billion in 1998 to $3.5 billion by 2000. Some component suppliers
have seen their shares hop by as much as 1,000% in the past three years. The
stocks' popularity seems unlikely to ease before the demand for components does.
Uniphase trades at 100 times last year's profits, excluding merger and acquisition
charges. SDL is trading at 75 times operating earnings, while the recent IPO highflier
E-Tek is trading at 98 times earnings. What helps is that Uniphase is expected to
grow profits 40% in coming years and E-Tek 28%. Cisco (CSCO:Nasdaq), which is
valued at 78 times operating profits, is expected to grow earnings 30% a year.
Research director Charles McCurdy with Veredus Asset Management, four-year
owner of Uniphase, isn't selling yet. His firm snapped up a little E-Tek to diversify. "I
think that there's enough demand right now to keep everybody's plate full."
The challenge is to expand facilities without disrupting production. "It's akin to
building a new airport, while at the same time keeping the old airport functioning,"
says Bill Diamond, marketing vice president with E-Tek, a peer of Uniphase that also
is based in San Jose.
It's the right problem to have. Component companies are feeding a ravenous market
demand that would make even Cisco envious. To maintain its 40% sales growth in
2000 and beyond, Cisco must convince telephone carriers to replace their voice
switches with Internet systems. For now at least, Uniphase's growth rate depends
simply on how fast it can expand its facilities.
That's not easy. The optical chips use four different elements -- not just silicon -- and
the testing process can last six months or more. The technical expertise of these
companies, which involves cramming more and more functions onto chips, is bringing
out some interesting comparisons.
"Like Intel (INTC:Nasdaq) with the Pentium chip, Uniphase will increase its power
and its reliability," says Phil Lamoreaux with money manager Lamoreaux Partners,
which has owned Uniphase since its IPO in 1993.
"Moore's Law is being broken in the optical world," Lamoreaux says. "We are more
than doubling capacity every 18 months." Intel's co-founder Gordon Moore predicted
that the number of transistors that could be crammed onto a microchip would double
at a regular interval -- roughly 18 months.
Lamoreaux should know. As an analyst with American Express, he put
venture-capital funding into Intel in 1970. Intel began to dominate the microprocessor
market and was able to increase its price relative to chip performance for years.
Similarly, Lamoreaux predicts, Uniphase will be able to charge a premium for its
optical amplifiers and other components.
But not yet. Last year, a price war amongst customers such as Ciena and Lucent
created a ripple effect. Including an accounting charge for disposal of assets,
Uniphase gross margins declined to 47% from 49% a year earlier. E-Tek gross
margins, on the other hand, slipped to 51% in the December quarter from 56% one
year earlier.
One latecomer to the game stumbled. Ortel (ORTL:Nasdaq), an optical components
company based in Alhambra, Calif., came up against stiff competition from Uniphase
in selling its pump lasers, which go into certain amplifiers. Ortel ditched the products
in November, deciding that further R&D wasn't worth the cost. The stock has sagged
from 20 last summer to 7 1/2 Friday as sales of its other products slowed as well.
The next generation of optical technology will kick up demand for components further.
Sycamore Networks, a promising startup based in Chelmsford, Mass., is starved for
its optical switch components. "One of the things we bet on was that we would be
able to get whatever components we wanted," says founder Daniel Smith.
Most of the current venture-capital investment is guided to optical networking startups
like Sycamore Networks that are customers of E-Tek and Uniphase. Hardly any
entrepreneurs are trying to break into the fiber components business. Lucent only
makes some of its own components, but these are for its own consumption.
Consolidation among the top players is already on the way. This spring, Uniphase,
the acquisitive leader in this field, will complete its merger with Ontario-based JDS
Fitel. Srikanth with First Albany says E-Tek, SDL and others might have to follow suit
in coming years.
"It comes down to us three or five companies," says E-Tek's Diamond.
Wednesday February 24, 1:31 pm Eastern Time
Company Press Release
SOURCE: SDL, Inc.
SDL Introduces 1480 nm Pump Laser
Module
Provides up to 10 Times More Power for Undersea Networks
SAN JOSE, Calif., Feb. 24 /PRNewswire/ -- SDL, Inc. (Nasdaq: SDLI - news) announced today
at the Optical Fiber Communication Conference in San Diego, California, a new pump laser module
for use in optically amplified systems that features a ten-fold increase in optical power over
conventional pump modules. Pump lasers are the key components that deliver optical power to fiber
optic amplifiers used in dense wavelength division multiplexed (DWDM) and undersea fiber optic
networks. The SDL-RL30 Series pump laser delivers 1.5 Watts or about ten times the power
available from traditional pump lasers. This remarkable performance enables remote pumping of
optical amplifiers for short haul undersea networks such as those connecting islands or cities along a
common coastline. SDL is now shipping sample quantities to customers for evaluation and
qualification.
''This revolutionary product allows our customers to achieve undersea spans of approximately 200
kilometers without requiring the pump lasers to be deployed undersea,'' said Donald R. Scifres,
SDL's chairman and chief executive officer. ''The RL30 is another example of our strategy to
develop industry leading solutions to increase the capacity of fiber optical networks in a cost
effective manner.''
The SDL-RL30 Series pump laser uses new fiber laser technology by combining multiple
semiconductor lasers with double-clad fiber to produce very high optical power in a single-mode
fiber. Low cost, high power multi-mode lasers emitting light near 900 nm are coupled to successive
stages of special fiber which upshift the wavelength to the 1455 nm to 1480 nm range. This
wavelength can be transmitted over relatively long spans of fiber optic cable with much less power
loss than shorter pump laser wavelengths. The availability of very high power in the 1480 nm
wavelength range enables undersea fiber optic links of a few hundred kilometers to be constructed
with the pump laser at the network terminals on shore even though the optical amplifiers may be
submerged undersea. This significantly reduces the electrical power consumption of the underwater
amplifiers and dramatically improves the reliability of the submerged equipment.
Statements in this press release which are not historical including statements regarding SDL's or
management's intentions, hopes, beliefs, expectations, representations, projections, plans or
predictions of the future are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements include statements regarding the potential power,
reliability and applications as well as the timing of commercialization of the pump laser. It is important
to note that the Company's actual results could differ materially from those in any such
forward-looking statements. Factors that could cause actual results to differ materially include the
company's inability to achieve expected power, reliability levels and ranges of wavelengths in
commercial production quantities for the pump laser, lack of market acceptance, qualification or
manufacturing of the new product, and the risk factors listed from time to time in the Company's
SEC reports including but not limited to the annual report on Form 10-K for the year ended
December 31, 1997, and quarterly reports on Forms 10-Q for the first three quarters of 1998.
SDL designs, manufactures and markets fiber optic related products, lasers and optoelectronic
based systems. The company's products are used in a diversity of markets such as
telecommunications, cable television, dense wavelength division multiplexing, satellite
communications, printing, medical, and materials processing markets.
SOURCE: SDL, Inc.
Wednesday February 24, 5:34 pm Eastern Time
Company Press Release
SOURCE: SDL, Inc.
SDL and Alcatel Partner to Deliver
High Power 980 nm Pump Modules
For Undersea Deployment
SAN JOSE, Calif., Feb. 23 /PRNewswire/ -- SDL, Inc. (Nasdaq: SDLI - news) and Alcatel
announced today that they will deliver high power 980 nm pump modules for deployment in the
latest generation of undersea communications networks. The high power, high reliability, wavelength
stabilized undersea pump modules are built by Alcatel Optronic Division using semiconductor laser
chips made by SDL, Inc. The resulting module will allow system designers to apply dense
wavelength division multiplexing (DWDM) technology to undersea communications networks to
meet the ever-increasing need for telecommunications and Internet traffic bandwidth.
Pump modules are a key component powering optical amplifiers used in DWDM fiber optic
communication networks. High power pump modules operating in the 980 nm wavelength range
offer significant system cost and performance benefits compared to components previously used in
undersea networks. This new generation of pump modules introduces less noise on signals
propagating through the optical amplifiers. This low noise characteristic effectively increases the
available transmission bandwidth of a fiber optic network. The same characteristic can be used to
increase the fiber optic span length between amplifiers, resulting in significantly lower network capital
costs.
Alcatel's optical amplifiers using SDL's 980 nm pump lasers have been successfully deployed for
several years in terrestrial fiber optic networks. Only recently have these devices demonstrated the
exceptional reliability required for use in undersea networks. Alcatel and SDL have worked closely
for more than a year to ensure that the performance and reliability of these modules meet or exceed
the requirements of the latest generation of undersea fiber optic networks. The culmination of this
cooperative effort was an exclusive four-year agreement between Alcatel and SDL for the supply of
980 nm laser chips for use in pump modules for underseas markets. A production ramp in the first
quarter of 1999 is underway.
''Alcatel's extensive experience in the design and manufacture of submarine qualified components
has been a powerful complement to SDL's world renowned high power laser chip technology,'' said
Jean-Marie Vansteenkiste, chairman and chief executive officer of Alcatel Optoelectronic activity.
''In fact, we have exceeded some of our initial performance targets with enough margin to enable
additional network performance benefits. We believe we can now offer the highest level of power
and reliability available in the undersea market.''
The pump module design also features passive wavelength stabilization, a critical performance
requirement for wide bandwidth DWDM optical amplifiers. Variations in pump wavelength can
cause changes in the amplification experienced by different signal channels transmitted by an optical
amplifier. Such variations can seriously degrade system performance and are, therefore, undesirable
in DWDM amplifiers. SDL has optimized the laser chip and grating design to stabilize the laser
wavelength and thereby maximize pump module performance. According to Donald R. Scifres,
SDL's chairman and chief executive officer, ''We are very encouraged that our high power grating
stabilized laser appears to deliver the best combination of performance, reliability and
manufacturability. The close cooperation between Alcatel and SDL for this program resulted in a
combination of product performance and time to market that could not be achieved by either
company alone. This partnership and contract is part of our ongoing strategy to capitalize on our
technology by providing large telecommunications companies with leading edge products to boost
throughput on their networks.''
Statements in this press release which are not historical including statements regarding SDL's or
management's intentions, hopes, beliefs, expectations, representations, projections, plans or
predictions of the future are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements include statements regarding the company's ability
to successfully ramp up production to meet customer demands, and the ability of the company's high
power grating stabilized laser to deliver the best combination of performance, reliability,
manufacturability and time to market. It is important to note that the Company's actual results could
differ materially from those in any such forward-looking statements. Factors that could cause actual
results to differ materially include risks related to uncertainties in the actual performance, reliability,
and manufacturability of the product, delays or cancellation of the orders, inability to successfully
ramp production, and the risk factors listed from time to time in the Company's SEC reports
including but not limited to the annual report on Form 10-K for the year ended December 31, 1997,
and quarterly reports on Forms 10-Q for the first three quarters of 1998.
SDL designs, manufactures and markets fiber optic related products, lasers and optoelectronic
based systems. The company's products are used in a diversity of markets such as
telecommunications, cable television, dense wavelength division multiplexing, satellite
communications, printing, medical, and materials processing markets.
SOURCE: SDL, Inc. |
