A few interesting articles by Jim Seymour...
Photons, My Boy
By Jim Seymour
Special to TheStreet.com
4/10/00 4:25 PM ET
Mr. McGuire: I just want to say one word to you...just one word.
Benjamin Braddock: Yes, sir.
Mr. McGuire: Are you listening?
Benjamin: Yes sir, I am.
Mr. McGuire: ...Plastics.
With that memorable exchange in Mike Nichols' brilliant 1967 movie The Graduate, the word "plastics" became
forever linked in our consciousness with the notion of "getting ahead."
No matter that poor Ben was floundering about at the time, a new college graduate wrestling with the dilemma of
simultaneous affairs with Elaine Robinson and her mother. No matter than Mr. McGuire was about as empty and
vacuous a suit as we've ever seen on the screen.
Plastics. That was it.
I hope I have a little more credibility and better credentials than Mr. McGuire, so let me give you the
word I'd give young Benjamin today:
Photons.
Of all the business opportunities around us today, and particularly, of all the investing opportunities
I see ahead, the best, by far, lie in optical technologies. Pushing photons around instead of
pushing electrons around is going to be key to almost every important communications technology and system in
the 21st Century.
One of my favorite mottos is "Solve no small problems." That grows out of a lifetime of observing that those who
solve small problems earn small returns, and those who solve big problems -- or even just pieces of them -- very
often earn huge returns. Your choice: big payback or little payback?
I'll readily concede that others would choose a different key word for their investing, and maybe for their careers, for
the next couple of decades: wireless, Net infrastructure, broadband, biotech, nanotechnology -- all are serious
choices, and I could make a case for choosing any one of them:
I think biotech is going to redefine how we think about health and disease over the next 20 years. We'll make
more progress over that time than we did in all of the 20th Century -- and maybe, more than in all of recorded
history. But biotech's too much of a crapshoot now to make it the center of your investing strategy.
I think nanotechnology will prove to be the technology of the 21st Century, cutting across all lines, from
biomed to manufacturing, from computers to communications. I first encountered the ideas behind nanotech
-- the creation of ultra-small "machines," on the molecular level and which in combination can do
extraordinary things -- in the 1960s, and have been following it ever since. Nanotech's going to reinvent our
world. But again, it's way too early to sift among the very few investment possibilities to find ultimate big
winners.
I think wireless is going to change how we use computers and communications tools generally, over the next
decade. As I've written here before, m-commerce, or mobile commerce, based on Net access through
portable, wireless devices, will replace e-commerce in our vocabularies. But although it's not at all too early to
invest in wireless plays, and I've recommended several (and will do an update on that soon), I don't think
wireless is the big play.
I think broadband is a powerful idea whose time has come, and bringing broadband to the rest of the market
-- the more than 90% of North American Web users who don't yet have it, and to the over 99% of the world's
Web users who don't yet have it -- is going to be a good business. But making money from broadband is
going to be difficult for the next few years, with its rollout, at least in the U.S., mainly in the hands of two
groups, the regional bell operating companies and the cable companies, who have not given us much to
cheer about. Moreover, there are still serious problems in getting both cable access and DSL where they
need to be, in provisioning costs and procedures, in additional infrastructure-upgrade costs. And the
progress of fast wireless access may seriously compromise the future of broadband as we know it today.
Good investments, yes, here and there; but risky, frustrating and inconsistent. Not at the heart of your
investment strategy, I hope.
And I think Net infrastructure is going to be big, and a steady winner. As with wireless, I've recommended
several infrastructure plays, and I think infrastructure plays are the safest bets right now in Net/Web investing.
I'm hip-deep in several myself. But the potential for big moves has diminished...and by focusing on photons,
on optical networking, you get both infrastructure exposure and the potential for big multiples.
All that said, and deeply believed, I have to say that my definition of investing in photons tends to be broad,
inconsistent, and no doubt for some TheStreet.com subscribers, very frustrating.
Sure, I want the pure plays, but I also want the companies at the intersection of the new and the old, the companies
that bridge us into optical networking, as well as those positioning themselves for dominance in the Photon Century.
So I buy and recommend that others consider some companies that true optical-networking purists laugh at,
because all they have are revenues, customers and profits.
Sounds good to me.
You'll be hearing a lot more from me about optical plays; about working the seams between the worlds of electrons
and photons, copper and fiber; about how to make money in the optical swamp.
There'll be lots more. I'll continue looking at all the aspects of tech I've been writing about here for a year and a half:
from Microsoft's (MSFT:Nasdaq - news - boards)future to digital music; from mainstream networkers to the fringe-y
players; from broadband developments to narrow but deep plays in all kinds of tech.
But you can expect to see photons, and the companies that can make you money by riding the light (sorry, Qwest
(Q:NYSE - news - boards)), as a continuing theme in these quarters. Because that's where much of the real money
will be found.
Just say I've seen -- or maybe been seduced by -- the light.
Benjamin Braddock: Mrs. Robinson, you're trying to seduce me...aren't you?
Mrs. Robinson: Would you like me to seduce you? Is that what you want?
Benjamin Braddock: We could do something else, Mrs. Robinson. We could go to a movie.
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients
in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the
information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was
long Qwest, although holdings can change at any time. Seymour does not write about companies that are current or
recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations,
he invites your feedback at jseymour@thestreet.com.
The Big Boys on Optical Street: Part 2
By Jim Seymour
Special to TheStreet.com
4/13/00 1:15 PM ET
As I said, today I want to cover the five companies I think lie at the heart of a reasonable photonics portfolio, the
companies in the center ring of my three-concentric-rings investment model for photonics.
The companies I put in the center ring: Lucent (LU:NYSE - news - boards), Nortel (NT:NYSE - news - boards), Cisco
(CSCO:Nasdaq - news - boards), JDS Uniphase (JDSU:Nasdaq - news - boards) and Corning (GLW:NYSE - news -
boards).
Lucent and Nortel are trying to knock each other out in technological leadership in photonics. I think Lucent is the
likely bigger winner, long term -- by which I mean three to five years from now and on out beyond the horizon -- but
Nortel's taking a chunk out of their hide now, and will continue to for the next few years. Plus, the contest is hardly
decided.
Lucent CEO Rich McGinn is taking a page out of Cisco's playbook, buying in advanced R&D companies and striking
deals with them, to speed Lucent's progress in optical networking. Just yesterday Lucent announced a joint venture
with white-hot TeraBeam Networks to create a new company, TeraBeam Internet Systems, to build laser-based
networking tools. Lucent already had two important in-house laser ventures, WaveStar and Optic Air.
It's not clear whether Lucent will be tossing some of that technology into the new TeraBeam
Internet Systems basket, along with the $400 million-plus in cash and patent licenses it has
agreed to contribute.
Laser-based networking can be blindingly fast, and relatively quick and easy to install. But current
laser-networking technology doesn't work well through fog, heavy rain and some especially dense
pollution, so it's not a complete answer. Lucent and TeraBeam want to solve those problems.
Nortel has been buddying up to smaller high-tech R&D shops too, buying optical-switch maker Xros for $3.25 billion
last month, and optical long-haul developer Qtera in January for a similar amount. Neither had shipped a product
when Nortel bought them -- a classic "R&D by acquisition" strategy for Nortel. Xros, especially, is intriguing, because
it's working on the all-optical domain-switching problem, perhaps the biggest and most rewarding problem today in
photonics, about which you'll see more here shortly.
Despite its dominance of the networking market, Cisco was not a big player in photonics until its purchase last fall of
Cerent and Monterrey Networks for $7.4 billion in Cisco stock, followed shortly by its purchase, just before
Christmas, of the optical networking businesses that had been built in Europe by Pirelli. That ran another $2.15
billion, in another all-stock deal.
Ten billion is a pretty good bet, but Cisco's just getting started. Look for more and larger investments in leading-edge
optical-networking suppliers this year. CEO John Chambers has gotten religion on photonics, and believes he can
eventually edge aside both Lucent and Nortel in this vast market.
JDS Uniphase is well known to TheStreet.com subscribers. Since the company was formed last summer by the
merger of optical-networking suppliers Uniphase and JDS Fitel, it's been a barnburner, a great example of one of my
second-tier companies elbowing its way into the center ring.
JDS Uniphase just bought Cronos Integrated Microsystems for $750 million. Cronos' products use silicon instead
of electromechanical devices for optical switching. JDS Uniphase hopes to scale up the Cronos technology and
apply it to very large optical-switch arrays.
Of all these companies I put at the center of the optical world, none is as consistently hungry and aggressive as JDS
Uniphase.
Finally, my old favorite, Corning, the glass wire people, appears in this group. Up from around 12 to over 150 over the
past year -- and down to around 100 this week, Corning is the world's leading supplier of the fiber-optic cables that
are the core of the present boom in optical networking.
In some ways, Corning is supply-constrained: it sells out its production capacity many months ahead, and stays sold
out. Building additional capacity is neither quick nor cheap -- but it belongs, I am convinced, in an optical
core-holdings list.
That's it: my Big Five optical companies I think ought to form the core of an optical-technology portfolio. Time to
establish positions in them?
Probably not. This market smells to me like it still hasn't formed a bottom, a fear reinforced by last week's short-lived
bounce. But when you feel like your stomach has settled down enough to start buying tech again, think optical.
In the weeks to come, I'll talk about my second- and third-ring companies, and I'm sure we'll argue a lot in emails
about those.
And watch "TheStreet.com" on The Fox News Channel this weekend, where I'll be talking more about the power of
the photonics revolution.
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients
in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the
information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was
long Lucent and Cisco, although holdings can change at any time. Seymour does not write about companies that are
current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or
recommendations, he invites you |
