from Individual Investor--fiberoptics
BID & ASK: My Favorite Fiber Optic Stocks
Tom Byrne (1/13/00)
The fiber optics revolution has just begun which means that there is much more upside left for
stocks in this sector. In 1983, AT&T (NYSE: T - Quotes, News, Boards) deployed the first fiber-optic
system that ran from New York to Washington D.C. Voice and data traveledat 45 megabits per
second over this network.
In 1988, AT&T laid the world?s first transatlantic fiber optic cable, which ran at 270 megabits per
second. In five years, the power of fiber optic transmissionincreased six-fold. But that advance was
nothing compared to what came next.
In 1995, Nortel (NYSE: NT - Quotes, News, Boards), Lucent (NYSE: LU - Quotes, News, Boards) and
Ciena (NASDAQ: CIEN - Quotes, News,Boards) introduced wave-splitting gear that divided one
fiber into multiple photon freeways. Currently, data can travel at gigabit speeds more than 100
wavelengthsper fiber strand, which is 1.6 trillion bits per second, or ten thousand times more
powerful than 1988 speeds. Does anyone see a pattern here?
Fiber optics is such a malleable conductor, that new technologies allow it to become faster and
faster. No other form of bandwidth has that type of untappedpotential. Copper lines can be made
more powerful, but are approaching the zenith of their performance potential. Satellite transmission is
competitively fast, but it has finite potential; the same for microwave transmission and cellular
communications. So there is only one place toturn when you need more speed, and that is fiber
optics.
Fiber optic networks have been set up throughout this country, and thanks to companies like Global
Crossing (NASDAQ: GBLX - Quotes, News, Boards),new fiber optic networks are now being laid
that will connect the world. Fiber optics has become the backbone of our communications network.
Photonics is the latest iteration that boosts the capacity of fiber optic cables. Thanks to photonics,
consumers are going to surf the Internet as fast as they switchchannels on television. What takes a
few seconds now to download will take a few milliseconds once consumers are hooked up to a
complete fiber optic network.
Photonics has increased the speed of fiber optic cables beyond any other competitive mode of
transmission. Being the fastest is a gargantuan advantage in the fieldof communications. Banks,
insurance companies, brokerage companies and corporations of all types (not to mention the retail
consumer) save money with fastercommunication and faster monetary transactions.
Current fiber optics, with the aid of photonics, have dropped the cost of carrying traffic over fiber
lines to about 1% of what it would cost using any form ofcompeting electronic equipment. With
Internet and business-to-business (B-to-B) traffic expected to increase by 2000% by the year 2002,
according to ForresterResearch, that bodes well for companies involved in fiber optics and
photonics. Here are a few stocks I like in this area
.
Top Picks
First up are the monoliths, the titans that rule the broad world of fiber optic communications. I have
already mentioned four: AT&T, Nortel, Lucent and Ciena are allgreat long-term buys. Cisco Systems
(NASDAQ: CSCO - Quotes, News, Boards) should also be included on this list. These five
companies (let?s call themThe Big Five) all have fiber optic units in their companies and are
developing new technologies based upon photonics.
Second, are some lesser-known names that will benefit from the prolific trend toward the use of fiber
optics and photonics. E-Tek Systems (NASDAQ: ETEK -Quotes, News, Boards) makes fiber optic
components and modules, such as optical isolators, filters, couplers, and wavelength division
multiplexing products(which allow optical fiber to carry more data and graphic and voice information
without requiring more lines). E-Tek shares gained 400% last year, as sales increased 62% to $173
million and net income rose 54% to $28 million.
JDS Uniphase (NASDAQ: JDSU - Quotes, News, Boards) and SDL (NASDAQ: SDLI - Quotes,
News, Boards) also make components, or the guts thatgo into a fiber optic network. Both companies
sell their wares to The Big Five and both companies make products that increase the carrying
capacity of fiber opticnetworks. That?s the key. It?s not just about making fiber optic components,
it?s about making gizmos that make fiber optics more powerful.
Finally, I like Sycamore Networks (NASDAQ: SCMR - Quotes, News, Boards), which makes optical
networking products that enable network serviceproviders to upgrade their existing fiber-optic
networks to offer more bandwidth.
Sycamore has $281 million in cash, versus only $15 million in current liabilities. In the company?s
most recent quarter, sales were up to $19.5 million, versusnegligible sales a year ago. The company
produced $3 million in positive cash flow from operations, versus negative cash flow of $1.2 million a
year ago.
At $265, Sycamore is not a cheap stock by any stretch, nor or any of the other stocks mentioned in
this article. But I don?t care. All of these stocks are going upover the next decade, just as the
potential and the speed of fiber optic networks go up.
No other transmission conduit has increased or can increase at the same rate as fiber optics.
According to AT&T, it is only using about four out of every 33 fibers ithas in the ground. This
holds true for companies like Qwest Communications (NYSE: Q - Quotes, News, Boards) and Nortel
as well, who claim they arenowhere near the capacity use of their fiber optic networks.
Bottom Line:
That spells big potential for fiber optics and big rewards for investors who buy any or all the stocks
I have recommended in this article. |
