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

To: PLeaps who wrote (1373)	5/18/2000 8:55:00 PM
From: Jerry Miller	Read Replies (2) \| Respond to of 3951

i sure like your idea about the December 150s. good strike, with plenty of time. but i'm wondering if you're concerned at all about that big gap at 195. a split announcement notwithstanding, tomorrow would be the perfect day for it to fill, since the marketmakers now probably have the May 200s on their wish list. just thinkin' out loud.

To: PLeaps who wrote (1373)	5/19/2000 2:45:00 AM
From: pat mudge	Read Replies (4) \| Respond to of 3951

SDLI annual meeting, May 18, 2000: After the usual voting, Don Scifres, CEO, gave a brief slide presentation. He highlighted the 92% seq. revenue growth last quarter and said there would be tremendous growth again this quarter. They're sold out in many product areas and he sees continued growth, "five, ten, twenty years ahead. . ." The demand in broadband is probably only 1% met today. As DWDM systems move to more channels and higher power, they'll need more and more of SDL's products. Trends playing into their strength: * going from 8 to 16 to 32 to 80 to 200 channels * from 2.5 G/bs to 10 G/bps to 40 G/bps * from terrestrial to submarine to Metro/CATV/access * from focus on individual components to module-level products * and move from electrical/optical/electrical to all optical networks. Before the meeting began I Don if bringing Raman to market early had been a waste since it won't really take off till 2001 and his response was an emphatic, "No!" He then explained how being early meant they were being designed-in to many systems and once you're designed in, it's hard to be dislodged. For many reasons, including the cost of the design-in-process and the time lost if you go to another source. Vendors want designs 2 years out. It's a big commitment and they hesitate to change once the relationship is established. Qualification process is lengthy. During the slide presentation Don said as systems become all optical, more amplifiers will be needed. Light will travel 3000 kms but will need amplifiers closer together. In order to keep amplifiers spaced at 100 kms and not have to increase them to 50 kms, networkers can install Raman pumps that make the last 50 kms transparent. This is a considerable savings in housing units as well. Going down the acquisitions: * IOC --- lithium niobate for light modules, does 10 gig and 40 gig * Veritech -- transmitters and receivers for advanced systems. They had focused on submarine but will be selling into terrestrial as well. * Queensgate --- network monitoring. If you don't want to turn wave into electronics, you have to detect waves. They can detect 256 wavelengths in a single fiber with extremely high level of accuracy. * PIRI --- will close in June. Arrayed Waveguide Grating (AWGs) --- multiplies 40 wavelengths into a single fiber. They provide first passive products. Also switches wavelengths without affecting other waves on the fiber. Products are half the cost of competitive technologies. SDL has 7 key product lines and many are the leaders in their space. In a number of cases they have 60-70% market share. Manufacturing improvements were listed and the most notable, no doubt because it's the most recent, was PIRI. Right now they're running one line for one shift on a 5-day schedule. This will be changed to two shifts on a 7-day schedule when the deal closes and then they'll double the facilities over the next 12 months. During the discussion of financials, one chart caught my eye: revenues per employee. SDL's is at $234 versus JDSU's and ETEK's in the $130 to 140 range. Customers over $1 million per quarter have gone from 7 to 13 and the number will go up significantly in the coming quarters. Random statistics: They paid $5 million for a division of Polaroid for its Raman products, which included 60 patents and licenses amd a $4 million product contract. The market for these products is estimated to reach $1.9 to 2 billion over the next 4 to 5 years. SDL is around a year ahead of the competition in being qualified and designed in. The IOC acquisition cost $50 million at time of announcement and closed at $80 million due to stock appreciation. The 10 gig light module market is estimated to be $1.5 billion by 2003. PIRI cost $1.8 billion. They had $20 million in revenues in Q1 and grew 70% from '99 to '00. The AWG market is estimated to be $1.2 billion by 2003. In the Q&A, someone asked about component constraints. Don said there were some and as a consequence their smaller customers may only get 1/3 what they want. On the positive side, it's created an environment where vendors are wanting to sign multi-year contracts. Another person asked if SDL was aiming to be a one-stop-shop, and the answer was a resounding affirmative. Don said there were a few holes to fill but wouldn't elaborate for fear of tipping his hand. Based on their success so far, no one complained. Indium Phosphide products available by end of year. In manufacturing, quality is the key element. They learned by selling into the satellite market what it takes to deliver the quality their customers demand. In their "customer report card," quality ranked the highest on a list that included technology, quality, service, value, and delivery. One shareholder asked if the Fed's action regarding interest rates would impact their customers' buying momentum and Don smiled and said he didn't see any impact whatsoever. Considering they're working 7/24 to get more manufacturing in place to meet customer demand, you can see why he smiled. After the meeting I chatted with Mike Foster and Dave Welch and tried to get a sense of where the extra authorized shares would be used and got the standard "acqisitions or splits" response from both. No time schedules mentioned in either case. They're definitely ready for action when the time is right. Incidentally, the PIRI acquisition was one JDS would have liked to have done but couldn't risk upsetting the DOJ during their ETEK merger inquiry. There was some talk that this would make the JDS-ETEK merger easier as it proves the competition isn't being hurt. It's definitely SDL's most strategic acquisition to date. I'd say there were around 30 present at the meeting. Up from 3 shareholders and a smattering of managers and directors last year. I think I'll attend every year, sort of like Chaucer's pilgrimages to Canterbury. :) Pat