To: Bill Harmond who wrote (7332 ) 5/31/2001 12:27:20 AM From: Bill Harmond Read Replies (1) | Respond to Frankly I think this was cover for cutting Sycamore loose:From Briefing tonight: Optical Pessimism : Morgan Stanley's downgrades of four stocks in the optical networking sector this morning suggest that even the conflicted brokerage firm community is coming around to the grim reality facing this sector. Up until now, the not-so conflicted research house Bernstein has been one of the only realistic voices on the optical sector. That a brokerage firm of Morgan Stanley's stature is now saying that the bottom for the sector is over a year off highlights just how bad the fundamentals are. Briefing.com has been writing about the problems facing the sector for months now, and unfortunately, everything we have seen lately continues to support our pessimistic view. Success for the optical sector depends on rising capital expenditures by carriers. In recent weeks, however, we have seen a steady stream of downward revisions to carrier capex plans, which will only further intensify the pricing pressure that is just beginning to hit this sector. You could still justify buying these stocks if there were at least some leading indicators that carrier capex might pick up in the months and quarters ahead. But here again, there is no good news. On the emerging provider front, we are continuing to see cost-cutting and even Chapter 11 filings as these firms struggle to stay in business. Capex within this group is likely to be in freefall for many quarters to come. The news is better for the incumbent carriers as they will benefit from the demise of many emerging carrier competitors, but the market in total is shrinking, as a modest increase in overall carrier revenues will not be enough to offset the rising debt service burden. The only realistic path to increasing capex through next year is if emerging carriers can once again gain access to new financing. Nothing can be ruled out in the financial markets, but renewed capital availability for emerging carriers is a long shot at best. The turn in the sector will come into better focus when enough emerging carriers have failed or been acquired to reduce the overall sector's debt burden and also reduce the supply of bandwidth. When this happens, rising capex at the incumbents will begin to dominate the telecom picture and the optical sector can look forward to renewed growth. Unfortunately, that turning point is not yet visible. - Greg Jones, Briefing.com There are subsectors of the telecom equipment market that continue to grow at a fast clip. One area is smart bandwidth, in which Ciena and ONI have emerged as the leading players.
