Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Global Crossing - GX (formerly GBLX) -- Ignore unavailable to you. Want to Upgrade?

To: Theophile who wrote (10652)	4/16/2001 9:25:19 AM
From: Curtis E. Bemis	Read Replies (1) \| Respond to of 15615

So, what is Annunziata up to today (you might ask) ? This from a UBS Warburg report I got this morning-- CSCO: PERSPECTIVE ON STRATEGIC DEAL WITH VELOCITA Summary: On Friday, PF.Net Corp., a wholly-owned subsidiary of Velocita Corp., filed an 8K which details a new vendor financing/equity and supply agreement with Cisco. Cisco will provide $485M in equity and vendor financing, in return for being selected as the preferred supplier of IP and optical equipment. The initial contract value is $225M. There are two major takeaways from Cisco's perspective. This is the first time Cisco has invested in the equity of a telecom operator customer. The contract also includes the long haul DWDM 15800 product, thus, indicating this product line will not be terminated as part of any Cisco restructuring plan. Highlights: On Friday, Velocita entered into a vendor financing/equity and supply agreement with Cisco. There are three main aspects of this agreement. 1) Cisco is providing $285M in vendor financing. The loan is for equipment and services only and not for working capital. 2) Cisco is purchasing $200M in equity of Velocita. This is the first time Cisco has purchased equity in a telecom operator customer. 3) Velocita has selected Cisco as its preferred end-to-end network supplier for optical and IP equipment for its 18,500 mile fiber optic network. Velocita has committed to purchase at least $225 million of equipment from Cisco during the next two years, and expects to spend significantly more on such equipment to complete the network. Velocita is a private based nationwide broadband networks provider. The company is building a next generation telecom network that will traverse 18,500 miles connecting 50 cities in the U.S. The network is planned to be complete in 2002. Velocita has a strategic relationship with AT&T (T.N, $21.78, Buy), whereby it is building a portion of AT&T's next generation network using AT&T rights-of-way. In doing so, Velocita is constructing its own network, alongside the AT&T conduits. Velocita's Chairman is Bob Annunziata, former CEO of Global Crossing and founder of Teleport. The CEO of Velocita is Buddy Pickle, former president of Teligent and UUNet. The main product lines from Cisco that are part of the deal include: 15800 long haul DWDM, 15454 (i.e. Cerent platform), 12416 (new high end IP router) and the 7600 optical services router (OSR). Two major takeaways from this deal from Cisco's perspective are: 1) This is the first time Cisco has purchased equity in a telecom operator customer. 2) The contract includes the long haul 15800 DWDM product. We had thought this was one product line Cisco may discontinue when it announces its restructuring plan on May 8th when it reports earnings. Analysis: This is the first time that Cisco has purchased equity in a telecom operator. In the past, Cisco has opted not to purchase equity as it did not want to have an ownership interest in any of its customers. We believe Cisco has broken this policy for the following reasons. - The capital markets are virtually shut for new emerging carriers. We believe Cisco will only due a small number of such equity investments and only as long as equity markets remain tight. - Cisco has high regards for the management team at Velocita given their past track record of success. - Strategically, Velocita was important given its unique relationship with AT&T. The contract includes Cisco's long haul DWDM product, the 15800, which was derived from the Pirelli acquisition. There has been some thought that Cisco would exit the long haul DWDM market after the recent cancellation of 15900 wavelength router product and the much anticipated restructuring plan (probably to be announced when Cisco reports earnings on May 8th). Cisco indicated an ongoing focus on metro optical networks when the 15900 product was cancelled. In addition, Cisco has indicated recently that it will focus more on profitability going forward. The fact that Cisco is staying in the long haul DWDM market, a market that was about $7B in 2000 with Cisco's share being well under 5%, quite frankly is a surprise to us. ________________________________________________________________________