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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: the dodger who wrote (33976)	10/30/2000 12:22:33 AM
From: Judith Williams	Read Replies (1) \| Respond to of 54805

dodger I own some JDSU--but I'm having a problem seeing where the $$$ are going to come from to fuel their long-term growth....It looks to me like the organic revenue growth in the carrier industry is somewhere around 12-13%....Plus none of this takes into account the huge financial drain the $100billion+ spectrum auctions will have on the wireless sector. First off, I don't think you can extrapolate the communications sector's performance or likely performance from the telcos. AT&T, Sprint and MCIWorldcom are voice-oriented and burdened with legacy systems (to say nothing of the bureaucracy). The telcos are losing share to upstarts like Qwest, Global Crossing and Metromedia which have been data-oriented from the get-go. You have only to compare ATT&T's dismal quarter with Qwest's sparkling results to see where the wind is blowing and the dollars are going. There seem to be three schools of thought on future growth. Bandwidth is like money and sex--only too much seems to be enough. fortune.com There is a glut of bandwidth and prices are falling faster than the Nasdaq--translation, hard times ahead The available pool of financing is shrinking--translation, clecs are dying, debt markets are chilled, equity's already been trashed, companies are killing each other in competitive price battles, so who's going to be left to pay the piper for the component makers? and why would they? Well Bruce Brown has an answer in his Fat Pipe series on the Fool. boards.fool.com BECAUSE THE TOILETS ARE CLOGGED. Getting right down to basics, he pictures a restaurant that usually handles 100 people. Suddenly the traffic goes up to 1000. Big problem. The same thing is happening in the communications infrastructure. In some cases, demand for traffic is doubling every 90 days...."Our traffic is rising eight- to tenfold per year," says Mike O'Dell, senior vice president of technology at UUNet. The drain's clogged. Twisted copper can't handle the traffic. While they were regulated monopolies, cable companies and telcos had no incentive to deploy new networks or offer differentiated services. Now they have no choice. It's pay or play time. They face an optical version of the prisoner's dilemma: If none of them innovates, each might get along with reduced capital expenditures (and disgruntled customers). But what is the chance of that? Some enterprising Qwest is going to innovate and grab their market share. On the Corning cc Luber was asked if GLW was worried about slowdown in capex spending by telcos. His reply was revealing. Even if overall spending drops, spending the optical area will grow. Fiber is 4% of the cost of putting the next generation network in and it provides enormous leverage for the telecoms. [With] the shift away from SONET you can naturally drop your spending and pick up tremendous advantages through optical networking. You must invest in the new technology or die. Kevin Landes defined the basic problem for carriers in a recent interview. Most of their traffic is data and most of their revenue is voice. But optical gear costs less than SONET/SDH. Morgan Stanley points out that because of cheaper deployment costs and service capabilities, optical equipment generally pays for itself in a relatively short time. Ultralong-haul gear costs anywhere from $30 to $45million compared to the $200 to $220million it costs for SONET. Some metro equipment can pay for itself in as little as three months. It should hearten you that JDSU is a WDM and DWDM shop, not SONET. Almost all the future growth will be in packet traffic that requires excess bandwidth to work well. Now that we are no longer working off such a low base, we may not see the extreme levels of growth, but market research firm RHK forecasts that the optics market should reach $90billion by 2003. Most predictions of a fiber glut include dark fiber, but dark fiber is not equivalent to useable bandwidth. To light dark fiber, optics equipment must be installed--which means all those nice amplifiers, tuners, and modulators JDSU makes. And fiber-optic is cheap compared to wireless. According to Forbes, the financing needs of laying fiber in the ground and installing services and software to carry massive amounts of data look downright reasonable compared with the costs of building a wireless network. The pricetag for building new wireless networks in Western Europe, for example, will be on the order of $175billion. The top ten fiber optic builders, on the other hand, will need only another $20 to $40billion over the next few years. forbes.com Judith