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To: Johnny Canuck who wrote (24742)	1/7/2000 10:48:00 AM
From: Johnny Canuck	Respond to of 68364

RMBS continuing to run despite poor market backdrop.

To: Johnny Canuck who wrote (24742)	1/7/2000 11:23:00 AM
From: broken_cookie	Respond to of 68364

Thanks Harry, NT was specifically mentioned on CNBC during the interview this morning with the CEO of LU. They were credited (grugingly by the LU CEO) with a technology lead in optical and the partial recipient of the optical business that LU lost. I think that was the gist of it - this was before I had coffee so don't hold me to it.

To: Johnny Canuck who wrote (24742)	1/7/2000 12:18:00 PM
From: drsvelte	Read Replies (1) \| Respond to of 68364

from briefing.com... Lucent Aftermath 07-Jan-00 00:10 ET [BRIEFING.COM - Gregory A. Jones] It was a bad quarter for Lucent (LU), and it will probably be a bad day for the market tomorrow as a result. But there's more to this story. We need to parse the LU warning if we are to make sense of what it means for the market generally and for the telecommunications sector specifically. The Lucent miss was not only of large magnitude ($0.36-0.39 in Q1 vs $0.54 estimate), but it was also of long duration, spanning two quarters -- a brutal combination which explains the 28% dismantling of the stock this afternoon. The company cited four factors for the miss, and these factors offer the key to discerning which telecoms companies we should be avoiding and looking to buy in the LU aftermath. Fiber Optics "Faster than anticipated shifts in customers' purchases to Lucent's newest 80-channel DWDM optical product line and greater than expected demand for OC-192 capability on the 80-channel systems, which resulted in near-term manufacturing capacity and deployment constraints" This is clearly the least disconcerting of the factors behind Lucent's miss. Demand in the fiber optics' arena is not a problem. The problem was that LU did not properly anticipate how quickly service providers would shift to OC-192, the fastest fiber transmission rate at 10 Gbps. The fact that service providers are adopting OC-192 more quickly than LU expected is without question a bullish sign for the fiber equipment companies. The rally in fiber optic stocks is predicated on the notion that bandwidth needs are exploding and that service providers will be buying huge quantities of fiber optic equipment to meet this demand. Lucent's news validates this notion. It doesn't ease the blow much for Lucent, which lost business because it wasn't prepared for the demand. But it does bode well for other DWDM equipment providers such as Ciena (CIEN), Nortel (NT), Alcatel (ALA), and Cisco (CSCO) which is purchasing Pirelli's DWDM business (DWDM is dense wave division multiplexing, a technology which increases the bandwidth capacity of a strand of fiber by splitting the light stream into different wavelengths). It also bodes well for the suppliers of optical equipment such as amplifiers, laser pumps, isolators, couplers, etc. This list includes JDS Uniphase (JDSU), SDL (SDLI), and Etek (ETEK). There is nothing in the LU warning that suggests problems in the underlying business for these companies. Software "Lower software revenues, reflecting an acceleration in the continuing trend by service providers to acquire software more evenly throughout the year. In the past, these purchases occurred primarily in the quarter ending December 31" On the surface, this item sounds quite tame. A simple change in the seasonality of the business indicates that there is no change in the fundamentals of the business. But that assumes that Lucent's depiction of the problem is accurate. It is also possible that other factors are behind the software troubles -- either demand could be weak or competitors could be stealing business from LU. Both because Lucent indicated that there was no demand weakness and because LU competitors are doing very well, we doubt that this is a demand issue. It is probably due in part to the changing seasonal patterns, but also to stiff competition. Consider Portal Software (PRSF), which competes with LU's Kenan Systems division for customer billing and management software offered to service providers. PRSF has seen revenues explode from $7.2 mln in the Oct 1998 quarter to $28.1 mln in the Oct 1999 quarter. No demand weakness there -- but perhaps a competitive threat to LU. The Great Unknown "Changes in implementation plans by a number of customers inside and outside the United States, which led to delays in network deployments by enterprises and service providers" Changes in implementation plans? If you are looking for a reason why Lucent will take much of the telecommunications sector down tomorrow, this is it. This vague warning is the type that spooks the market. Lucent explained that the implementation plans were only delayed, and will be completed in the first half of fiscal 2000, but this still begs the questions of why the plans were delayed, and if the delays were specific to Lucent customers or were seen more broadly. If service providers in general were delaying projects into year-end, just about every telecommunications equipment company could be in jeopardy of missing its quarter. In an interview with Bloomberg, CEO Richard McGinn said that this problem was not Y2K-related, instead describing it as a sudden shift that was temporary in nature. He noted that in some cases, the delays were due to new managers reevaluating spending plans. This is somewhat comforting in that it does not sound as if there is a broad problem here. The fact that a Cisco spokesman said that there had been no change in Cisco's guidance for the quarter offers another hint that this might have been a Lucent-specific issue. But until we get some earnings reports from competitors such as NT, CIEN, and others (CSCO doesn't report until February), this aspect of LU's warning will keep the telecom equipment sector on edge. Gross Margins "Preliminary results show lower than anticipated gross margins this quarter from ramp-up costs associated with introducing and implementing new products and lower software revenues" This one we can safely say is a Lucent-specific problem. That won't be of comfort to Lucent investors, but it shouldn't hurt others in the sector. All Things Considered The threat of industry-wide project delays by service providers will justifiably hit all stocks in the telecom equipment sector. Given the already nasty mood in techs, that hit might be worse than it otherwise would be. But amid the carnage, investors should be looking for longer term opportunities. The fiber optic equipment companies are still facing robust demand, as indicated by the faster than expected bandwidth-grab noted by Lucent. This doesn't mean that JDSU, ETEK, SDLI, CIEN, CSCO, NT, and others should all be bought on Friday. It does mean that investors looking for exposure in this sector should look at the candidates and determine attractive entry prices -- those prices might just be available in coming sessions. The same goes for Portal Software and other software companies that might be competing effectively with Lucent. The tech waters were already dangerous, and they are even more treacherous following the Lucent warning. But that's the best time to identify the ultimate survivors and determine at what price you want to own them. Greg Jones - gjones@briefing.com.