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

To: neverenough who wrote (899)	11/12/2000 2:52:36 AM
From: tinkershaw	Read Replies (1) \| Respond to of 2293

I just don't understand this talk about Avanex being a bubble valuation at this time. If AVNX grows at the average of what JNPR, BRCM, BRCD, RBAK and SCMR grew at similar revenue profiles, AVNX is selling for 12x next year's revenues. That is approximately the same valuation that Wind River sells for and Wind River is growing at between 30-40% per annum. This is also only a short-term valuation. The markets AVNX are addressing are enormous and go on for years and years, we are talking a decade or more. The optic sector is basically no more mature than was the PC sector in 1986 and I was using a WANG word processor at the time. I remember moving to a IBM PC in 1987. In addition, AVNX did a remarkable thing of actually turnign a profit despite having to make enormous investment to rapidly and frantically grow production capacity. This is an amazing feat. Further, if you look at their balance sheet they did so while managing their cash in a way comparable to the what the Ciscos and Intel's of the world do. This company has better cash management than AMCC and BRCM by far. Measuring a company like AVNX by earnings per share at this stage in its development is pure folly. In fact measuring it by anything but future cash flows is pure folly. This is a business with large sustainable advantage, proven profitability, enormous and growing incredibly fast addressable market, and a business model and execution which promises to churn out tons of free cash flow. On a growth to future cash-flow or heck future earnings per share (and trust me I-bankers doing mergers and acquisitions do not value any business off earnings per share it is cash flow) basis this company is trading cheaper than Proctor and Gamble. Sure the stock will be volatile, but unless something material happens to the business, like some technology comes along that knocks AVNX's technology out of the water, AVNX is not falling to $2 or $10 or even $20. It may fall more from here given market conditions but it is not going to stay that low. Can you imagine for AVNX trading for 12x revenues next year? Or something like 112x trailing 12 month earnings? Well, 18 months from now that is very much what AVNX will be doing if the stock price does not move. And No, I can't imagine it. So I'm not worried. Where AVNX is concerned this bubble theory is just nonsense. Avenex is not Doubleclick (a business model whose cost structure almost assures its continued loss of money), nor is it Pets.com. At worse AVNX is like Yahoo! or AOL, except still in the sweet spot. Growing top line for AVNX also leads to very foreseeable growing bottom line. So instead of calling a generalized bubble, why don't you step back and look at the individual companies. Not every Internet stock burst; sure YHOO and AOL have fallen somewhat, but that is also related to the fact that their businesses have matured and their expected growth rates are slowing down. This is expected when a company matures. The same concern is beginning to hit Cisco, except Cisco continues to blow away estimates. Their optics business exploded 500%+ yoy this quarter and Cisco raised their forward projection guidance from 30% growth to 50-60% growth. That is they just doubled their forward guidance. It is just incredible. So I am not real concerned with "bubble" talk where a company like an AVNX or a RBAK are concerned. It is not even a question of Optics not disappearing, it is actually a question of just how fast will optics continue to grow. Since what AVNX does is make the building and monetizing of optical networks cheaper to the telecoms, its product will continue to be in great demand for some time. It makes money for the telecoms, they can measure it directly on their bottom lines. Tinker