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

To: hedgehog26 who wrote (915)	11/13/2000 5:26:58 PM
From: r.edwards	Read Replies (1) \| Respond to of 2293

Some fundamentals on AVNX are included in post # 860. eom

To: hedgehog26 who wrote (915)	11/13/2000 10:00:07 PM
From: neverenough	Read Replies (1) \| Respond to of 2293

MORGAN STANLEY DEAN WITTER Outperform Avanex (AVNX) Alkesh Shah/David Jackson (New York) – Oct. 25, 2000 52–Wk Shs Out EPS EPS EPS 5-Yr Est. Price Rng Div Yld (MM) 2000A 2001E P/E 2002E P/E Growth $119 $274–47 -- -- 54.8 $(0.30) $0.25 NM $0.37 NM 50% Target Price: $175 Market Cap: $6.5B Fiscal year ends June 30. NM = not meaningful. Company Description Avanex designs, manufactures, and markets fiber-optic-based products, known as photonic processors, which are designed to increase the performance of optical networks. They offer communications service providers and optical systems manufacturers greater levels of performance and miniaturization, reduced complexity, and increased cost-effectiveness as compared to current alternatives. Valuation We rate AVNX Outperform with a $175 target price, or just under 30 times our calendar year 2001 sales estimate. Despite a pull back in some of the optical stocks, we think that Avanex deserves a premium valuation reflecting its rapid growth, strategic positioning, and strong product roadmap. We also expect a series of positive catalysts in the foreseeable future, including revenue upside, trials of PowerShaper, and contracts with major customers for PowerMux. We believe that the demand for optical products that are easily scalable could be significant and we remain very bullish on Avanex’s prospects in this space. Key Investment Positives · Products address key challenges of next-generation optical networks. Key challenges include: (1) how to increase the number of channels of light on a single fiber above currently available levels; (2) how to address the issue of chromatic dispersion on legacy fiber, and; (3) how to add and drop wavelengths without requiring optical-electrical- optical conversions. Avanex’s PowerMux, award-winning PowerShaper, and PowerExchange products address these challenges. · Rapidly growing market. While it is difficult to predict the size and growth of new markets, we believe that Avanex’s products have significant potential. There is wide agreement that the optical components industry is booming. Industry forecasters RHK recently updated their estimate of the 1999 market for terrestrial optical components from $1.4 billion to $1.6 billion, and their forecast for 2003 from $7.0 billion to $8.2 billion. The push to higher channel counts and higher speeds should result in a large and rapidly growing market for Avanex, in our opinion. · Close relationship with carriers. We believe that Avanex’s products enable substantial improvements in dense wave division multiplexing (DWDM) system performance. We expect some equipment vendors to work with Avanex to optimize their systems by using Avanex products. Similarly, we expect some service providers to work directly with Avanex to define their requirements and to optimize their specifications. · Customers include leading vendors and service providers. To date, Avanex has booked revenue from customers including WorldCom, Osicom, Hitachi, Cerent, Lucent Technologies, and Nortel Networks. Prototypes or trial systems have been shipped to customers including Lucent, GTE, Nortel, Fujitsu, Sycamore, Cerent, Pirelli (Cisco), Siemens, and Hitachi. We expect WorldCom to account for about 60% of Avanex’s total revenue at the end of the year and the company added Fujitsu as a 10% customer in the third quarter.

To: hedgehog26 who wrote (915)	11/13/2000 10:48:06 PM
From: tinkershaw	Read Replies (1) \| Respond to of 2293

I would like some amplification on your statement that AVNX is selling at 12x next year's sales. This would imply sales of around $780,000,000. Here is the math. $780 million is more like 7.22x next year's revenues. Avenex Market cap on Yahoo is $5.637 billion. $5.637 billion / 12 = $469,750 million. My pro forma revenue estimate is $455,970,000. This is based on an analysis of comparable companies at similar portions of their growth cycle. The comparables I used were BRCM, BRCD, JNPR, SCMR, and RBAK. So far the model has had one quarter of real time testing. For this last quarter the model projected AVNX revenues of $33.653 million. Actual revenues were $34.767 million (+3%). Of course one quarter does not make an accurate model, but I have no reason to believe that AVNX will grow any slower than the average comparable company. Under the model these are the expected revenue figures for March '01 and Jun '01 qs: $63,933, $99,147. These numbers will be subject to change as I receive more data from the comparables or add a few more comparables to the estimate. Nevertheless, if AVNX grows as fast as this group has on average, and as of now it has grown faster than the average, these will be the first 1/2 of 2001 revenue figures for AVNX. From this I extrapolate a 25% sequential growth rate for the succeeding two quarters. You can call these estimates anything you will, but AMCC, as an example, is growing revenues in excess on 30% sequentially, while being supply constrained, and while having their largest customers sequential growth actually decrease, off of similar revenue numbers. AMCC's customer list is similar to AVNX's. The result is approximately 12x next year revenues or $455.970,000. As for consensus estimates, my experience with NGN companies has been that the consensus estimates continue to rise quarter after quarter. Redback for example is not projected to have $650 million in sales next year, up from $525 million about 2 months ago, and in the end this will probably prove conservative. Juniper and Sycamore continue to blow away estimates. Avenex is in a market where it is not an expensive but actually an expense saver. Avenex allows a carrier to get more bandwidth out of its existing network and thus allow the carrier the luxury of not having to lay more expensive fiber. This hits the bottom line and is a no-brainer even for the stingiest carriers which may be run by an accountant. A capex slowdown by the carriers is not going to materially impact AVNX unless the carriers experience a need to reduce and cut back the bandwidth capabilities of their networks. If anything is clear the need for bandwidth is not decreasing. Tinker