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Strategies & Market Trends : Rande Is . . . HOME -- Ignore unavailable to you. Want to Upgrade?

To: Dennis O'Bell who wrote (41724)	11/18/2000 6:15:13 PM
From: ~digs	Respond to of 57584

On a different topic... This author is bullish on optical and broadband stocks... suggests accumulating during price weakness: Personal Capital: Get ready for broadband By R. Scott Raynovich Redherring.com, November 16, 2000 To get this column sent to your inbox, subscribe to the email newsletter. Being a Red Herring fan, contributor, and former employee, I eagerly picked up the latest issue to eye the predictions for the Top Ten Trends for 2001. There were some good ideas, and some glaring omissions. One example of an omission: not one mention of the integration and miniaturization of fiber-optic components. Red Herring's Trend No. 6, "Carriers shift from voice and data transmission to new high-bandwidth services," is right on the money, but it bears closer examination. Both of these trends -- the integration and miniaturization of fiber-optic components and the arrival of high-bandwidth data services -- will conspire to deliver the broadband revolution we've all been hearing about for years. 2001: A BROADBAND ODYSSEY The problem has been largely on the shoulders of telecom operators: incompetence among the regional Bell operating companies (RBOCs) and continued regulation results in a bottleneck in the local loop. As a result, telecom carriers have not been able to effectively market broadband applications and services. Don't believe me? Try ordering a T-1 or digital subscriber line (DSL). For this reason, I think that traditional, monopoly-oriented RBOCs remain unexciting investment opportunities. Somebody needs to prove they understand broadband services before they demand a penny of your money. In late 2001, innovative rollouts of new broadband services will finally begin to unfold. This will require several things to happen: more-aggressive carrier startups need to challenge RBOCs in metropolitan areas; the government needs to loosen the incumbents' grip in the local loop; and service-provisioning technology needs to mature. The first problem -- the local-loop bottleneck -- is being worked on in several areas. The progress will be slow for consumers, but much more attractive in the business market. For example, aggressive regional Ethernet local exchange carriers (ELECs) such as Cogent Communications and Yipes Communications will cause massive pricing chaos in the RBOC data market. Cogent's model is most compelling in its simplicity: 100 Mbps Ethernet for $1,000 per month. These metropolitan Ethernet carriers, of course, are being enabled by innovations at the fiber-optic component and equipment level. Such innovation is equivalent to what was happening in the early stages of the PC and semiconductor industries. The innovation at the optical level will rapidly decrease the price of bandwidth. NETWORKING OPPORTUNITIES In the public markets, the chaos of this transition is already evident. Witness the blowups at AT&T (NYSE: T) and Lucent Technologies (NYSE: LU) -- two companies too firmly entrenched in the old-world monopoly voice market. Their loss has been others' gain: witness the rise of companies that have focused on enabling next-generation services in the data market, such as Qwest Communications (NYSE: Q), Juniper Networks (Nasdaq: JNPR), Redback Networks (Nasdaq: RBAK), and Sycamore Networks (Nasdaq: SCMR), all of which have won important early battles. The valuations of many of these companies make them risky plays, but as I've said in recent columns, the best way to get into these stocks is to accumulate them during price weakness -- the exact scenario we've had in the last few weeks. They are crucial holdings as a group. Likewise, on the components level, the development of tiny, integrated optical devices will enable these bandwidth advances. A flood of optical-components companies are arriving on the scene. What does that mean for today's stock market? Companies such as JDS Uniphase (Nasdaq: JDSU) and its merger partner SDL (Nasdaq: SDLI) will continue to dominate until they are challenged in the public markets -- and right now, there are few significant challengers, other than Avanex (Nasdaq: AVNX), New Focus (Nasdaq: NUFO), and Optical Communication Products (Nasdaq: OCPI). Again, the valuations of individual companies will rise and fall, but the value of the industry as a whole will continue to rise. You can't afford not to be playing in this sector. That brings us to the bottom line: bubble or long-term trend? Optics and bandwidth are long-term trends. It is important to use market weakness as an opportunity to keep investing in this space, because the companies on the cutting edge of optical components, systems, and services represent the next wave of growth in technology.