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Technology Stocks : Scientific Atlanta -SFA- going up ??? -- Ignore unavailable to you. Want to Upgrade?

To: minorejoy2000 who wrote (1017)	7/21/2001 3:21:04 PM
From: Lee Lichterman III	Respond to of 1045

Thanks, that sounds a lot like what I wrote this morning on our site..... By Lee_Lichterman on Saturday, July 21, 2001 - 06:31 am: Edit I am looking at SFA as a long term buy and hold for my kids IRA due to the creaming it received Friday. Bad things, obviously institutions wanted out and wanted out bad. 25 million shares traded as it crashed down when normal volume is around 2 1/2 million so 10 times normal volume on a drop of over 30%. Sales fell short of expectations but earnings were in line. Things to worry about... Inventory shot up from 50K STBs ( Set top boxes) to 116K, accounts receivable shot up to 169 million ( smoke and mirrors?), 20% decline in bookings year over year and a 40% decline in bookings from the 3rd quarter. Sales increased from 2000 though by double and they are now doing a 1 million box a quarter clip to most of the cable leaders. What hurt them was the AT&T broadband customer as they had their well known financial problems and thus cut orders. Comcast, Charter, Adelphia etc all were still buying with the top 3 each making up slightly more than 10% of their orders so no heavy reliance on any one cable company now. Digital cable is just now starting to roll out with only one million boxes installed and only about 500K currently subscribing to full interactive content. To me, this is the beginning of the PC era and hardly anyone owns one yet. IN other words this is buying DELL before anyone on your street has a PC of their own. Earnings are already real with 275 million in cash and investments ( I need to see what the investments are but SFA is fairly conservative so it is likely other cable service or cable directed interactive software companies). Earnings this year were around 2 bucks a share but there was a 50 cent bonus from the sale of their satellite business that won't be there next year. I am figuring next year's earnings to be around $1.60 conservatively for a forward PE of under 14 and trailing PE of 11. Backlog was actually up 40% and turn time is about 7 days. Over all margins are about 16% but are 30% in the high end STBs. The company makes mainly STBs both basic analog which is decreasing, and interactive digital which is increasing and then cable modems. Of note, 3com announced they were exiting the consumer sided modem business so this may help here also. They aquired PowerTV and this quarter announced it seems that PowerTV is becoming the accepted standard so royalty streams could ensue that would make earnings more predictable also. Next quarter's earnings are guided at 29 cents a share. The question is then, will digital service and interactivity be accepted and implemented quickly into the home or is this a toy that no one needs or wants. For demos, go to SFA's website and see all that is possible. You will be able to order food, shop, play games, order TV shows, movies etc all from home. No more running to the video store to get a movie, you can just point and click like at a hotel. Sports guys can get stats etc. and movie buffs can get Bios on their favorite stars. There are growth possibilities of the web phone being incorporated and your telecom all going through here as well. While in old times, valuations were lower and there was a wait and see type model, I just have a hard time believing that unless all the big tech names crash down 80%, that SFA can stay this low for long. ( thinking long term here). People think that QCOM is worth a fortune because 3G will come on line right away when all the over seas markets are delaying rollout. Vodaphone just announced Friday it is pushing back 3G rollout to 2003 etc. AMAT, MU, PMCS, GLW, CSCO etc all have declining earnings and no turn around forecasted until next year yet they have PE ratios in the 40s to 60s. As you all know, I have liked this company for a long time and have traded in and out of it for years so can someone take off my rose tinted glasses, slap me around a little and tell me what I am missing here? Also, what is the time frame anyone sees this bottoming before it is a good buy? Will it be quick in a crash and bounce like it did in 99 or will it be a long drag down like KEA/CPWR before it finally bases and then moves up months from now? I see a downside of worst case 10 bucks and a possible double mid to shortened long term (year?) and who knows years from now. Good Luck, Lee