To: Johnny Canuck who wrote (24362 ) 11/11/1999 3:14:00 PM From: drsvelte Read Replies (1) | Respond to
Sanmina (SANM) 106 1/2 +1 1/16: One of the more interesting realizations from the AEA conference was that Metricom's much heralded equity sale of $600 million to Paul Allen's Vulcan Ventures and MCI/Worldcom isn't enough capital. Metricom will also be raising an additional $950 million in (mostly) debt and (possibly) equity. That adds up to $1.5 billion to be raised to buildout the nationwide wireless ISP network. As we promised in the Stock Brief about the conference we spent some time figuring out where this money would be spent. After all, $1.5 billion in 18 months is a lot of money for somebody. Metricom will be spending this money on both ISP infrastructure (routers, hubs, etc) which will come from numerous providers (Cisco, and others). It won't be much of an impact on those income sheets. CommScope (CTV) and Anicom (ANIC) have already announced that they have been selected for commodity cable and accessories parts. But the Metricom specific pieces, the pole-top transmitters, and the modem receivers for your laptop, come only from a handful of suppliers. The modems are made primarily by Novatel (NGPS) and Sierra Wireless (SW - Toronto Exchange). Modem sales, however, will likely be linked to the number of subscribers that sign up. The pole-top transmitters are the only component that is single sourced, and must be installed regardless of how many subscribers sign up. They are made only by Sanmina. They cost Metricom about $1,500 each, and approximately 100,000 of them are needed to rollout the service in the 12 major cities planned. That adds up to about $150 million over 18 months, or $25 million a quarter. But that's assuming an even ramp-up; it is more likely to weighted towards the front part of the 18-months. Sanmina did $348 million in the most recent quarter, with $1.2 billion in TTM revenue. Their sequential growth was $39 million. If Metricom really does add $25 million a quarter, Sanmina revenues will actually jump sharply, and the rate of their revenue growth will increase. Anytime the rate of growth increases along with absolute revenue growth, valuation multiples usually increase too. Sanmina is already kind of expensive for a contract hardware manufacturer, at 5 times sales, but if Metricom comes through, it would be a big boost for them. It is a less risky play on the Metricom rollout, since they system will be built whether people sign up or not (at least in the beginning), but if Metricom's plans flop, Sanmina will suffer along with them. SANM has risen 25% in the past month, so we clearly aren't the first to figure this out, but when you factor out the overall tech rise in the market, we conclude the Metricom deal isn't fully built into SANM price. - RVG
