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Technology Stocks : SDL, Inc. [Nasdaq: SDLI] -- Ignore unavailable to you. Want to Upgrade?

To: BDR who wrote (1232)	4/27/2000 10:02:00 PM
From: pat mudge	Read Replies (3) \| Respond to of 3951

``Worldwide demand for active photonic devices has accelerated this year and is expected to continue to grow by more than 50% annually for at least the next two years,'' said Dr. Gerald J. Fine, vice president and general manager for Corning's Photonic Technologies Division. ``This expansion will allow us to better meet the needs of our customers as they strive to keep up with demand for additional bandwidth.'' Excellent growth numbers. And seconding your post, and in this case specific to SDLI, a few comments from H&Q's SDLI report: Submarine business continues to ramp with a positive impact on margins: The outlook for the submarine business remains extremely storng. Business with Alcatel, the submarine system market share leader, continues to grow. Alcatel is already purchasing current generation 980nm pump chips and Raman lasers, and is expected to begin using the next-generation 6540 series 980 nm pump chip later this year. SDL also has the other two major submarine pump module customers (who in turn sell to system vendors Tyco and KDD), and we believe both of these have begun to ship in volume. Overall, we believe SDL continues to gain share in an accelerating submarine market, and should account for >60% of the submarine pump chip market by the end of 2000. Given the relatively high margins of submarine products, upside to our 2H:00 and FY:01 gross margin estimates is possible. Product expansion plans on-track; Raman lasers and high-powered 980 pumps highlight progress: SDL continues to expand its product portfolio through internal development and acquisition. Raman business continues to ramp as this technology becomes more important for next generation architectures, which extend the performance envelope of optical networking in terms of speed, reach, and channel density. For example, virtually every ultra long haul and 40 Gbps design relies on this technology because of its low noise and distributed high power. Although JDS Uniphase and Lucent have recently introduced Raman products, we view SDL as the leader in this segment of the market with significant time-to-market and power advantages. We view SDL as the leader in 980 nm pump lasers as well. The Company recently introduced its next generation 300 mW+ pump module, and expect this product to ramp in 2H:00, although the current product line will remain strong in existing amplifier designs for some time to come. As far as acquired product goes, SDL recently closed the acquisitions of Veritech and Queensgate, and completed IOC last year. Although still not profitable as a business unit, IOC continues to gain traction, and won three new designs this past quarter and now has five customers in commercial production. Most of Veritech's contribution is attributable to submarine business, but the company's transmitter technology will become more relevant in next generation terrestrial systems. Estimates and recommendation: SDL continues to exceed our estimates, driven by solid customer and product progress. Near-term momentum will be driven by continued strength in 980 nm terrestrial pump modules and submarine products coupled with the Company's ability to expand manufacturing capacity and increase yields. We are raising our estimates from $87.5M/0.19 to $91.1M/.25 for Q2, and from $362M/0.08 to $379M/1.07 for FY:00, and from $557M/1.13 to $575M/1.43 for FY:01, even with a slightly higher 36% tax rate through 2001. Given a positive outlook in virtually all of SDL's telecom markets and the Company's strong position and expanding product line, we believe upside is likely. We reiterate our BUY recommendation on SDLI shares.