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Technology Stocks : Oclaro, Inc. (Avanex-Bookham) -- Ignore unavailable to you. Want to Upgrade?

To: Shaw who wrote (885)	11/11/2000 7:18:45 PM
From: Raymond Duray	Read Replies (1) \| Respond to of 2293

The Fiber Optic Bubble: Mania and Madness Hi Shaw, optical build out of the metro areas, you have only to listen to NT's and CSCO's conference call to know that sector is cranking, For many years, there was no movement to bring optical gear to the metro market. The cost of the gear was simply prohibitive for the enterprise market. What you have to hope for are two things. Vastly lowered costs on optical gear will engender a strong market, and that lowering price on components won't have a negative impact on profitability, and thus the valuation of underlying securities. To me, that's a huge leap of faith. Here's a snapshot of the fiber optic component and system sector as of yesterday's close: Company: Mkt. Cap: Sales(ttm): Profit (1): PSR: AVCI $1.98B $0.01B (2) -$0.083B 72 AVNX 5.60B 0.07B - 0.080B 50 BKHM 2.50B 0.02B - 0.040B 96 CIEN 25.70B 0.71B + 0.060B 38 CORV 15.30B 0.02B - 0.223B 179 EXFO 1.35B 0.07B + 0.001B 16 FNSR 4.50B 0.08B + 0.005B 50 GLW 54.90B 6.39B + 0.614B 8 HLIT 0.85B 0.28B - 0.155B 2 JNPR 54.30B 0.42B + 0.089B 134 LUMM 0.35B 0 - 0.144B nmf NEWP 2.76B 0.21B + 0.002B 13 JDSU 65.70B 1.99B - 1.810B 27 ONIS 8.14B 0.03B - 0.134B 147 SCMR 16.20B 0.20B + 0.020B 64 SDLI 19.30B 0.39B - 0.160B 45 Totals: $309.43B $10.89B -$2.067B nmf That is a PSR of 30. In more mature sectors on the tech market, this is more like 5 or 10. NT, for example is at PSR of 3.84. One can only expect that the PSR of the stocks listed above will over time revert to more normal levels. Of course, sales will increase and thus we won't see the sector re-price down 80% as the math would indicate. But to expect further expansions of the PSR is to defy recent history, and the standard way that all breakthrough industries are eventually priced in a maturing industry. Lets, for the sake of argument, assume that the industry will be able to earn $1 Billion in Profit in calendar 2001. At present valuations, we have the market at a P/E of 300. The Nasdaq market, existing since the early 1970's, has over the course of it's existence had a P/E of 15. Granted, we have just gone through an extraordinary, once in a century technological transformation. But what we are finding out now is that no one is making any money at it, in the aggregate. What is going on is that the retail investor has been fueling this boom and now it's payday. And guess what? The revolution in the telecommunications industry is not paying its own way and at the same time is destroying the profitability of the existing infrastructure companies. Can we sustain a P/E of 300 for an industry that has huge profitability problems? I'll let the reader decide. This should give pause to any investor. You need no other statistics to realize that this is a mania, a bubble and it will eventually be rationalized, at the expense of millions of retail investors. -Ray