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Technology Stocks : Scientific Atlanta -SFA- going up ??? -- Ignore unavailable to you. Want to Upgrade?

To: napoopoo1 who wrote (840)	7/7/2000 4:02:34 AM
From: Allegoria	Respond to of 1045

"...earnings will grow at an average annual rate of 23.9%..." Ref: telecommanalyst.com Cable Boxes for the Internet Age By Marc H. Gerstein, Market Guide, Director of Investment Products Does anyone remember the "information superhighway?" Once upon a time, the investment community bid shares of cable TV companies to great heights based on the conviction that these outfits would collectively create and own the information superhighway encompassing data, voice and interactivity. A funny thing happened on the way to the future. The average person got hooked on the Internet and before you could say http://www, the information superhighway was up and running and cable TV wasn't in the driver's seat. Actually, this really isn't much of a superhighway; it's more like a pothole-plagued side street, and 56K modems mean cable's dream of superhighway dominance is still alive. But there are still more obstacles for cable firms. DSL (digital subscriber lines) emerged as a way to boost speed over old phone lines, enabling broadband Internet to get off the ground. So cable operators are going to have to fight hard to win any meaningful slice of the pie. And they can't forego the battle and just stay with television, because they need interactive data and voice capabilities to differentiate themselves from satellite broadcasters. It's nice to sell to customers who feel pressured to buy. SCIENTIFIC-ATLANTA (SFA), which is a leader in products used to transmit digital signals and a major player in the market for set-top boxes used by cable TV subscribers to receive all these fancy new services, does just that – it sells to customers who need to buy. Admittedly, SCIENTIFIC-ATLANTA isn't the only company selling set-top boxes. The market is booming so strongly, the company finds itself having to roll up its sleeves to boost production to keep pace with demand. It's little wonder, then, that SCIENTIFIC-ATLANTA appeared on a screen whose EPS, operating margin and return on investment have been trending upward over the past five years. The company has been announcing a stream of big new contracts, most likely for sales to CHARTER COMMUNICATIONS (CHTR) and ADELPHIA COMMUNICATIONS (ADLAC). Production is being ramped up from a rate of almost 780,000 set-top boxes a quarter to about 1 million in July 2000 and 1.3 million by January 2001. The consensus forecast calls for earnings of $0.83 a share in the fiscal year ending June 2000 and then a jump to $1.12 a share fiscal 2001. Analysts are forecasting that earnings will grow at an average annual rate of 23.9% thereafter. The bad news is those investors have to pay a high price to participate in reasonably well-defined growth. The stock sells for about 60 times June 2001 EPS. But high PEG ratios (P/E ratio divided by earnings growth rate) are a fact of life throughout the new economy. Those inclined to accept such valuation risks can, with SCIENTIFIC-ATLANTA, at least hang their hats on the fact the company is profitable. Another potential support for new economy stock valuations lies in the possibility for new business opportunities to produce more growth than analysts now include in quantitative projections. For SCIENTIFIC-ATLANTA, newly announced ventures with NET2PHONE (NTOP), for voice-over-Internet telephony, and EASTMAN KODAK (EK), for an interactive service to enable the sharing digital photographs via TV, add the flavor of new business potential.

To: napoopoo1 who wrote (840)	7/10/2000 12:00:04 PM
From: Allegoria	Read Replies (1) \| Respond to of 1045

Gross margins should hit 30% in FY 01 From E-Trade: We expect sales to rise about 32% in both FY 00 (Jun.) and FY 01, spurred by accelerating shipments of digital boxes and strong sales of transmission systems. Gross margins should hit 30% in FY 01, up about half a point from FY 00, as narrower margins for digital boxes in comparison to those of analog boxes are offset by economies of scale. The company shipped 512,000 digital set-top boxes in the third quarter of FY 00, and the company plans on expanding its capacity to manufacture over 1.3 million digital boxes per quarter by January 2001. As of late May, SFA was manufacturing about 720,000 boxes per quarter. We expect operating margins to improve from 6% in FY 99 to about 12% in FY 01, aided by reduced operating expenses and the sale of the unprofitable portion of the satellite business. Our EPS forecast excludes one-time gains from the sale of investments. Valuation 30-MAY-00 We continue to recommend buying shares of SFA. The company's fundamentals remain very strong due to an accelerated push by North American cable operators to deploy digital services. The set-top business is capacity constrained at this point, but the company is planning to add significant amounts of capacity in the near future. Because demand for boxes has outstripped SFA's immediate ability to produce them, orders for boxes were almost double actual shipments in the third quarter. This strong order inflow has given us more confidence in our EPS estimates. We see additional opportunities for the company to expand overseas as international cable operators begin to upgrade their existing networks. Despite an above average P/E multiple, we believe that the shares are undervalued relative to SFA's growth opportunities and its position as one of the few independent cable equipment firms.