i've been long unph since mid Jan., and bought some jds because of the merger to get the 4-5% discount, so my average is about 80. i'm trying to figure out where i'm going with this one and i'd appreciate any comments. i'd like to be told that the following analysis is wrong, misses important advantages jds-unph will have.
seems to me unph's strength in its markets lie in proprietary skills and the 2 great fabs it bought from Phillips and IBM which give it a lead, but no lock on the technology.
both unph's active components and jds' passive fibre-optics require people with considerable patience, concentration and art rather than science - skills asians are known for. Asia currently has leading edge technology and mfg. capability but no contacts for marketing and sales. Will they make by commoditizing?
NT and LU make all these components and source from each other as well as the merchant manufacturers like unph and sdli, keeping competition going, with one analyst estimating that prices are falling more than 30% a year.
Messrs. kalkhoven and strauss are extraordinary businessmen. they will execute flawlessly and stay in the lead a long time. they now have over 50% of the merchant market, 28% of the total mkt. their very skillful teams may create hybrid modules even though high power laser diodes generate so much heat that they could affect the performance of heat-sensitive passive units, and if they do, and can patent it, they'll extend their lead.
but how does this admittedly powerful team - with the foregoing limitations - justify 20 times sales and 60 times estimated calendar 2000 earnings of 2.15 a share, when lu sells at 4.6 times sales and nt at 2.3. lu grows eps at 32%, jds unph at 72% - on a much smaller base. demand for dwdm components grew 60% in '98.
if i allow a bit for the competition i think is coming vs. the enormous ability and lead of our team i'd drop the multiple to say 40 times and come out at the mid 80's - which is where i came in. |
