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Strategies & Market Trends : The Thread Formerly Known as No Rest For The Wicked -- Ignore unavailable to you. Want to Upgrade?

To: jimbos who wrote (56656)	9/2/1999 5:33:00 AM
From: Neil H	Respond to of 90042

Good article/possible future takeover. Advanced Fibre: Blueprint for a Buyout By Dave Sterman, Director of Online Research (9/2/99) One day within the next several months, Cisco Systems (NASDAQ: CSCO - Quotes, News, Boards) will mail a check for $417 million to Advanced Fibre Communications (NASDAQ: AFCI - Quotes, News, Boards). That?s the pay-off for Cisco?s decision to pay $6.9 billion to acquire Cerent, which makes products that connect phone systems to fiber optic networks. Last year, Advanced Fibre was smart enough to invest some spare change for a 5.5% stake in Cerent. Like this Article? Even after Uncle Sam takes his cut, Advanced Fibre will still walk away with a cool $274 million. Throw in the company?s existing cash balance, and AFC has nearly $425 million to spend. And spend it will. ?Acquisitions are an important part of our long-term strategy,? says CEO John Schofield. And if you look at today?s rapidly changing world of telecom equipment providers, picking up niche technology providers makes a lot of sense. Other outfits such as Tellabs (NASDAQ:TLAB - Quotes, News, Boards), Ciena (NASDAQ:CIEN - Quotes, News, Boards), Adtran (NASDAQ: ADTN - Quotes, News, Boards) and Tekelec (NASDAQ: TKLC - Quotes, News, Boards) have been bulking up to better compete. Hunting and Gathering As is the case with those others, Advanced Fibre is now on the prowl for companies that have products ?that would augment our own lines,? says Schofield. Advanced Fibre has already made a major splash in the market place with its UMC 1000, a digital loop carrier that helps phone companies to more effectively serve smaller markets. In particular, Schofield would like to pick up some good technology in the areas of high- speed optics and multi-service access devices. High-speed optics are the clear wave of the future for telecom providers. They boost the power of traditional phone systems to better handle Internet data and telephony. Rather than junk a multi-billion dollar investment in existing systems, Baby bells and long distance carriers can upgrade more quickly and cheaply. But Schofield admits that acquisitions alone may not be sufficient. ?In the grand scheme of things, customers are looking for a complete range of products,? he says. To that end, he notes that Advanced Fibre is looking to join forces with ?a large global player.? Cisco? Lucent (NYSE: LU - Quotes, News, Boards)? NorTel (NYSE: NT - Quotes, News, Boards)? ?Before the end of the year, we hope to make an announcement with a key player,? he says. Any deal will likely fuel speculation that Advanced Fibre would eventually be bought out by its strategic partner. And such talk can only help the stock price. For now, Advanced Fibre needs to focus on rebuilding top-line growth. The company managed to more than double sales every year through 1997. But since early 1998, sales have been slipping. Much of the blame lies with the economic crises of last summer. Sales, though, may be poised to rebound anew in the months to come. Analysts generally expect Advanced Fibre to post sequentially stronger quarters through at least the end of next year. As with other telecom outfits, Advanced Fibre will get a big boost as phone companies deploy more high-speed Internet access gear. ?Broadband is finally upon us and the Internet is clearly driving that,? says Schofield, adding that ?the RBOCs and CLECs have announced aggressive plans to roll (broadband) out.? But Schofield admits that ?our international business hasn?t started to ramp up yet.? International sales is where Advanced Fibre first buttered its bread. Bottom Line: In the wacky world of the rapidly consolidating telecom sector, investors can expect the following scenario to play out: Advanced Fibre will likely use its cash stash to gobble up smaller players, then ally itself with a large telecom player, and then finally be bought out. And all of this could happen in the next twelve months. Advanced Fibre closed Wednesday at $16.31. Regards Neil