Misery loves company so it helps to know that others did worse.<g>
Sycamore, Next Level, Avanex Big Losers in Communications
Rout
4/12/00 2:45:00 PM
Source: Bloomberg News
Chelmsford, Massachusetts, April 12 (Bloomberg) -- Shares of Sycamore Networks Inc., Next Level
Communications Inc., Avanex Corp. and Foundry Networks Inc. have lost half their value in six weeks
as investors find prices for the communications equipment makers don't justify the outlook for profits.
Sycamore, a maker of fiber-optic equipment that's expected to earn
its first profit this quarter, fell 19 7/16 to 70 9/16. It's tumbled 63
percent since closing at 189 15/16 on March 2. Next Level fell 24 1/4
to 91, bringing its loss since a March 16 high to 54 percent. Avanex
fell 11 1/2 to 87 1/2 today, while Foundry slid 15 3/16 to 86 3/8.
The companies were among the dozens that soared for months amid
optimism that demand for their products would result in higher sales
and profits. Even more-established makers of communications
equipment such as Nortel Networks Corp. and Cisco Systems Inc.
have dropped by 20 percent or more in the same period after tripling in
the preceding 12 months.
'It all gets back to what something is worth,' said Tom Laming, a
portfolio manager at Shawnee Mission, Kansas-based Kornitzer
Capital Management Inc., which runs $1.2 billion in assets, including
shares of Cisco. 'We're just seeing in the other direction what we saw
on the way up.'
Investors now question whether sales and profit will climb fast enough
to merit price-to-earnings ratios in the hundreds in some cases.
General Motors Corp., by contract, has a P/E ratio of 10, while AT&T
Corp.'s is 24.
Loss Quadruples
Terayon Communication Systems Inc., a maker of modems and other equipment for Internet access
over cable-TV networks, yesterday said its first-quarter loss quadrupled because of acquisition costs,
even as revenue more than tripled. Its shares, which tumbled 43 to 119 3/4 today, have lost 57
percent since closing at 277 5/8 on March 9.
Warburg Dillon Read LLC analyst Anton Wahlman, who rates Terayon a 'hold,' expects the stock to
fall to 90 within a year. Before today, the stock traded at 362 times his 2001 profit estimate of 45
cents a share, Wahlman said in a report.
Avanex, a maker of fiber-optic components that went public at $36 a share in February, still trades at
more than 1,000 times its expected fiscal 2001 earnings per share. It likely will lose money this year.
Chelmsford, Massachusetts-based Sycamore's 2001 P/E ratio is 470. Sycamore, at its peak, traded
at more than 1,000 times earnings.
'A lot of stocks have been brought down to a level where they're more realistically valued,' said Scott
Vergin, who runs $5 billion in stocks, including shares of Cisco and Nortel, for Lutheran Brotherhood
Inc. in Minneapolis.
Avanex is one of several companies that was swept up in the fervor for fiber optics, a technology that
uses beams of light to zap huge volumes of voice and data traffic on hair-thin strands of glass. Others
included JDS Uniphase Corp., still up more than six- fold in the past year, and Corning Inc., the
former manufacturer of cookware.
'When it came to anything with the word optical in it, people didn't care what the company made or
what its earnings were,' Laming said.
Lock-Ups Lifted
Some smaller companies such as Efficient Networks Inc. may have tumbled fast because more or
their shares are available for purchase now than when they went public, Laming said.
Efficient, which first sold shares in July at $15, lost a third of its value last week after the company
lifted a lock-up agreement that prevented insiders from selling the stock.
Buyers once had to pay a premium to get shares because most were owned by insiders who couldn't
sell. Now, it's easier for the stock to fall if holders sell because there's more supply.
Foundry, whose equipment competes with gear from Cisco, is in the same boat. The company will
free 45 million shares held by employees on Tuesday, said Gina Sockolow, an analyst at Brean
Murray & Co. who rates Foundry a 'hold.'
A separate block of 45 million shares, held by venture capitalists, was freed from a lock-up
agreement on March 27, Sockolow said. The company has 114.8 million shares outstanding.
Foundry wasn't immediately available to comment.
Foundry first sold shares to the public in September at a split-adjusted price of $12.50.
'It's not pretty,' Sockolow said.
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