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

To: Wyätt Gwyön who wrote (1345)	5/12/2000 10:32:00 AM
From: pat mudge	Respond to of 3951

From JPMorgan's Charlie Willhoit: . . . The deal is square in the middle of our thesis on SDLI --- that the company now has a strong enough currency to make significant acquisitions, most of which should immediately add to both the top and bottom line. In this case, PIRI will likely add $20-25 million in revenue per quarter for SDL in 2000 andmay add $200 million or more to the top-line in 2001. PIRI is also immediately accretive to earnings, likely adding $0.03 per quarter (and this is conservative) in 2000 and 20% or more to EPS in 2001. While this is obviously a great financial transaction, it is also an appealing strategic fit. PIRI offers SDL its first real entry into the passive optical components market -- but does it in a very compimentary way. AWGs are the first in what should be a long, ever evolving line of optical chips -- today's AWGs used for combining and dividing (max/demux) light at DWDM systems. Unlike thin film filters and fiber Bragg gratings (called dielectric filters), AWGs are semiconductor products (chips) -- the core competency of SDL. PIRI has long been regarded as the leader in this space and it is common knowledge that a number of public and private companies were bidding on the company. We believe that SDL was the ultimate winner, not because of price but because PIRI's largest customer Lucent, the largest consumer of AWGs, likely wanted to make sure that its supply was in good hands. SDL is a company with size, scale, capital, and a proven operating history. According to SDL and RHK, the AWG market could reach more than $1.3 billion in 2003, fram a very small base today. AWGs should gain significant traction as channel counts in optical networks increase --- AWGs have better pricing points at higher channel counts. While the technology is still in its relatively infant stages, we do expect a significant ramp in the market in 2001 and beyond. Aside from AWGs, PIRI also brings expertise in packaging and technology to compete in other passive markets, including variable optical attenuators (VOAs), couplers, splitters, switches and potentially interleavers and a number of other offerings. We remain bullish on shares of SDLI and believe that the PIRI deal will add significant revenue and earnings to our current estimates. We will officially revise our estimates when the deal closes. We reiterate our Buy rating on shares of SDLI and our target price of $315.