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To: Bill Harmond who wrote (7792)	7/2/2001 8:53:28 AM
From: Harvey Allen	Read Replies (1) \| Respond to of 57684

Glimmers of hope in optical networking By Sergio G. Non Staff Writer, CNET News.com July 2, 2001, 4:00 a.m. PT news analysis If you must invest in communications networking stocks these days, the pure-optical end might be the way to go. The carnage wrought upon communications hardware stocks this year has been spectacular even by Wall Street's standards, and the sector has only worsened in recent weeks. CNET's Telecom Equipment Index lost two-thirds of its value in the first six months of 2001, with much of the decline coming in June as network-related companies bombarded the newswires with earnings warnings, layoff announcements and a bankruptcy filing from a major data carrier. Communications carriers can't get enough business to fill their international fiber optic networks, with an extreme example being 360Networks, which last week filed for Chapter 11 bankruptcy protection. In the past two weeks, bad news of some sort has come from JDS Uniphase, Redback Networks, PMC-Sierra and Nokia. A lack of network traffic means less need for routers, networking chips and components such as lasers. But if some analysts are to be believed, there's an investor's refuge to be found at the high end. Wall Street research firms point to markets for optical switches and wavelength division multiplexing (WDM)--technology that increases data sent on fiber--as the most resilient parts of the communications equipment industry. These markets include companies such as Ciena, ONI Systems and Tellium. "We expect spending in the optical-switching and metro WDM segments will remain relatively stable, despite a tight capital market," said CIBC Oppenheimer analyst Rick Schafer in a research report released last week. "These two nascent sectors are just beginning to deliver on their overwhelming value propositions after years of false starts and hype." Optical networks were all the rage among investors last year. But the reality is that few networks are purely optical, although all-optical networks are generally regarded as cheaper and more efficient than their electronic or hybrid optical/electronic counterparts. But with telecom companies slashing capital-spending budgets drastically this year, no section of the market is immune. Not even optical-switch leader Ciena. "While we still expect Ciena to grow 40 (percent) to 60 percent faster than the optical systems market, we believe the market will decline in 2001 and remain flat in 2002," Merrill Lynch analyst Michael E. Ching wrote earlier this month. "It is now clear to us that no matter how good a product is, it is unlikely that market share gains will be enough to offset the market declines. Once Ciena works through some of their recent contract wins we expect the company to experience some of the same problems that are plaguing the other optical system suppliers." However, Ciena hasn't stumbled this year yet. As Ching noted, the company continues to win big contracts. It's not hard to see why Ciena continues to top analysts' earnings estimates, if you believe Robertson Stephens analyst Paul Silverstein. "While the investment community has expressed increasing concerns regarding Ciena’s ability to sustain its gross margins, we believe--absent a shortfall in revenues--a significant decline in gross margins during fiscal 2001 and 2002 is not necessarily a given," he wrote. He argues that Ciena's competition remains scant, so there are no price wars to ravage margins. "Pricing pressure in the particular segments of the optical industry in which Ciena competes is relatively more benign—-which is not to say that it is benign—-than those segments to which Nortel (Networks) and Lucent (Technologies) have the bulk of their exposure," Silverstein said. If anything, margins could improve because the companies that sell parts to Ciena and its peers have too much inventory, he said. Ciena should be able to squeeze cheaper prices from its suppliers, Silverstein said. "These concessions (from component suppliers) could offset most, if not all, of any pricing concessions that Ciena finds itself providing its carrier customers," he wrote. In the end, the optical technology of a Ciena or an ONI Systems simply is more important than other communications equipment, proponents will argue. "Can carriers still afford optical switches? Our checks indicate that spending on optical switches remains a priority for most carriers," said a recent Morgan Stanley report. news.cnet.com

To: Bill Harmond who wrote (7792)	7/2/2001 4:37:28 PM
From: craig crawford	Read Replies (1) \| Respond to of 57684

>> The market was higher after he started raising rates. No big deal on timing. << i suppose you make a point there, but you have to remember that in the aftermath of a bubble nothing ever comes back quickly. it takes years and years, oftentimes decades. so even if the market has ignored the rate cuts in the near-term, that doesn't mean if/when it does finally start responding to the cuts it will respond in a fashion like 1995! stocks may register nominal gains in the next few years, but after adjusting for inflation they will be very low or likely negative. then what? >> However if a business process has attractive ROI (particularly savings to fixed overhead) it will be deployed. There is no shortage of need for savings, ever << perhaps instead of spending more money on technology to try to wring out cost savings, it's more beneficial to spend less money by laying off workers! especially if demand is weakening. >> The whole productivity boom wasn't built on "nice to have" technology. It was spent on technology that got more done for less money << perhaps IT spending was so beneficial to productivity that companies already shot their wad and spent all they needed to on technology! perhaps IT spending was financed by increasing returns in the stock market and rising corporate profits. with that now in reverse, perhaps any future IT spending they need to make will be done only when the price is right because there is so much oversupply and hobbled suppliers are all vying for any business they can. bill, the simple fact is a couple years ago everyone felt they had to have a web presence. everyone had to have a corporate intranet. everyone felt they had to upgrade their supply chain. everyone felt they had to spend as fast as they could and it would all pay off. companies just aren't taking that approach anymore. and the powerful old economy companies with lots of cash and clout can tell people like cien to go fly a kite. sure we will be happy to buy your equipment. but not at last years prices! there are 5 other competitors vying for our money now mr ciena, you better give us the lowest bid! >> Then the only bet is how long this all will go on until there's marginal return. I know I'll be dead before this is halfway over << what will go on? IT spending? it's already collapsed! productivity? it's collapsed! what exactly has to continue growing to the sky? >> This is as big as railroads were in 1840 Like the railroads we have seen the first bust. That didn't stop anything. << busts were a lot shorter back then when there wasn't a fed to flub things up. even then there was a depression until 1843. >> "That bandwidth" is a whole lot of different protocols. A bet on telecom equipment here must be built on understanding the creative distruction happening in the whole industry << instead of trying to tap dance through a minefield hoping to pick the one or two companies that go unscathed, why not just pick a sector to invest in where most everything will go up? much more of a margin of error that way. william it's just silly for you to own all these tech stocks. maybe a couple here and there will turn out to be winners and find a way to generate returns for you, but the vast majority will probably go nowhere. now on the other hand if you held a portfolio of natural resource stocks in 5 years you might have a couple of losers but the vast majority will be huge winners.