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Technology Stocks : Lucent Technologies (LU) -- Ignore unavailable to you. Want to Upgrade?

To: jack bittner who wrote (11658)	12/14/1999 7:57:00 PM
From: Bindusagar Reddy	Read Replies (5) \| Respond to of 21876

I believe, LU will leapfrog everybody with their All optical Lambda Router with MEMS(micro-mirror) technology, which avoids electronics and saves utility costs for the carriers. Their strength is obviously Bell Labs and their OPTO-ELECTRONICS division. There are some impressive and excellent field reports from that division. Analysts think that division is worth 25-30 billions if independant. It is growing nearly 100% and is the largest manufacturer of the opto-electronics ahead of JDSUniphase. Some are speculating that LU may spin-off to unlock the value and enhance customer relationship with non-LU optical equip. makers like NT, CIEN, Sycamore, etc. Here is one such report. 07:29am EST 14-Dec-99 Warburg Dillon Read (Nikos Theodosopoulos) LU ETEK SDLI LU: LUCENT OPTOELECTRONICS - THE HIDDEN JEWEL Lucent Opto has leading market share in various discrete and integrated optical components today such as 2.5Gb/s receivers, 10Gb/s and 40Gb/s modulators, pump laser modules (not chips), DFB lasers, specialty fibers, submarine components, EML lasers, and 10Gb/s lithium niobate modulators. It is also a leader in optical amplifiers. New areas of focus for the company include MEMS for optical switching, Raman amplifiers, L band amplifiers and transponders. Opto has a world class manufacturing facility with a high level of automation. The company has doubled capacity in the past year and plans to double capacity again in the next nine months. The level of automation we witnessed was second to none in the industry. Lucent has developd several of the automated equipment used in the manufacturing process on its own. Much like JDSU, Lucent sees integration, technology leadership and low cost automated manufacturing as the keys to success in the optoelectronics business. Examples of integration successes include optical amplifiers, transponders and wide band tunable transmitters. Lucent, however, has one additional element within it integration strategy that is unique, namely, integration of integrated circuits and optical components. Given Lucent Microelectronics' leading Lucent Opto has leading market share in various discrete and integrated optical components today such as 2.5Gb/s receivers, 10Gb/s and 40Gb/s modulators, pump laser modules (not chips), DFB lasers, specialty fibers, submarine components, EML lasers, and 10Gb/s lithium niobate modulators. It is also a leader in optical amplifiers. New areas of focus for the company include MEMS for optical switching, Raman amplifiers, L band amplifiers and transponders. Opto has a world class manufacturing facility with a high level of automation. The company has doubled capacity in the past year and plans to double capacity again in the next nine months. The level of automation we witnessed was second to none in the industry. Lucent has developd several of the automated equipment used in the manufacturing process on its own. Much like JDSU, Lucent sees integration, technology leadership and low cost automated manufacturing as the keys to success in the optoelectronics business. Examples of integration successes include optical amplifiers, transponders and wide band tunable transmitters. Lucent, however, has one additional element within it integration strategy that is unique, namely, integration of integrated circuits and optical components. Given Lucent Microelectronics' leading position in communications semiconductors, we believe Lucent has a unique advantage in the industry to leverage both optical and electrical communications components in terms of integration. Most other companies are either strong in IC or optical technologies, but not usually both. One area in which Lucent does not have significant market share is discrete passive optical components. Lucent has a partnership with Horizon Photonics in California to address this area. Lucent views its partnership with Horizon as a way to leapfrog existing passive technologies through higher levels of automation than current passive manufacturers. ANALYSIS: We estimate 1999 sales for Opto at $800M and 2000 sales of at least $1.2B. Lucent Network Systems represented 29% of sales in 1999, thus, reflecting the breadth of the business and that this business is not run for Lucent's Network Systems products. The customer list is a who's who in the systems business from Cisco (CSCO-Buy-101) and CIENA (CIEN-Buy-72) to NorTel (NT-Buy-89) and Sycamore (SCMR-NR-240). Given Lucent's leadership position and high levels of automation, we believe its operating margin should be near the industry peer level of 30%. Given current valuations in the sector, we estimate Lucent Opto would be valued at $25B-$35B today. This is based on current valuations of peer companies of 20x-30x calendar 2000E sales and 120x-160x calendar 2000E earnings. Given that Lucent Opto represents about 2%-3% of total Lucent sales and 3%-5% of total Lucent operating profits, this value is not reflected in Lucent's stock today in our opinion. If valuations continue to stay at these levels for optical components companies, we believe it will be in Lucent's best interest to take action to address this discrepancy. In addition, significantly higher valuations of competitors should better allow these competitors to make acquisitions than Lucent Opto if current valuations persist. This could cause a weakening competitive position over time for Lucent Opto although it has not been the case to date. We believe an IPO or even perhaps a tracking stock, given the appeal of these instruments these days, should be considered for Lucent Opto to increase shareholder value.