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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Dealer who wrote (8866)	10/19/2000 9:56:30 PM
From: Dealer	Read Replies (1) \| Respond to of 65232

SDLI--SDL's Still Booming despite Lucent Effect By Jay Ritter What Happened? SDL's (Nasdaq: SDLI - news) stellar growth continued in the September quarter. After Thursday's close, the company announced that revenue of $147 million jumped 33% from the second quarter and by 332% from the prior year. Earnings of $0.45 per share (before merger- related charges and one-time adjustments) were up 52% sequentially and 420% year-over-year. Earnings easily topped the $0.38 per share Wall Street consensus with upside driven by a larger-than- anticipated increase in gross margins. The company's acquisition by JDS Uniphase (Nasdaq: JDSU - news) appears to be on track for a December close. What it Means for Investors In after-hours trading, SDL is trading around 20% below the value of the JDS Uniphase shares that investors will receive for each share of SDL (assuming the deal closes), making the stock a potential arbitrage play. While this seems like an attractive opportunity, we see substantial risk in this strategy, since a lot could happen to either stock between now and December. Would-be arbitrageurs should be wary of the treacherous industry landscape. When expectations are as high as they are in the white-hot optical components industry, there just isn't any room for a slip- up. SDL avoided what could have been a nasty surprise by diverting some of the output from PIRI, a recent acquisition that had been heavily dependent on sales to Lucent (NYSE: LU - news), to several new customers. JDS Uniphase, which is scheduled to report next week, also has substantial exposure to Lucent, but demand in this industry is so strong that we expect the company to meet or exceed its bogey even if sales to Lucent are weaker than normal.