Pat,
<Is the shift in AVNX's products moving smoothly? In other words, are PowerMux sales compensating for declines in PowerFilter? Also, does PowerMux obsolete PowerFilter?>
It is my understanding that the majority of the PowerFilter's functionality is incorporated into the PowerMux family. On the 8/1/01 conference call, Jessie stated that 80% of the revenue came from PowerMux and PowerExpress. In the Q & A he stated that PowerExpress was currently less than 10% of revenues. They stated they have 100 patents pending.
This is SSB's early June research and comments on the subject:
"Coming out of the March quarter, Avanex saw a precipitous decline in the sale of its PowerFilter product to WorldCom. On its conference call, management indicated it did not intend to find a replacement customer. We received
some more clarity on this issue during our management meeting. Avanex believes thin film filters, which are used in the PowerFilter, are not conducive to an automate multiplexer manufacturing process. Avanex sees the use of holographic gratings as the key to automated multiplexer manufacturing. As a result, the company is focused on migrating to its PowerMux NGX and away from its PowerFilter product.. We like the thinking behind the approach. However, we also think it is likely to take Avanex time to navigate the development and mix shift to this type of mux, adding risk to the intermediate term."
<The discussion of their relationship with CMI (contract manufacturer in China) is interesting.>
I'm not sure what you are referring to as "interesting", but the contract manufacturers only manufacture the legacy products.
<In April Fujitsu was a 51% customer. What was the percentage in July?>
The question was asked on the CC, but Jessie didn't have actual breakdowns and couldn't answer it. They stated currently 5 customers can account for more than 10% of revenue in any given quarter. There were 3 this quarter, and they were Cisco, Fujitsu and Alcatel. They currently have 17 customers, and 7 of those were brought on new this quarter. Fujitsu is a strategic partner. They see their relationship with CSCO taking a new direction, with new product, but couldn't elaborate on it. I got the impression that CSCO hasn't announced the product yet, so they didn't feel at liberty to discuss it.
<WorldCom was a large end-customer. Did their considerable investment impact that relationship?>
I don't know. Maybe, probably, but they're a non-event in the current revenue stream, so really, why would it be significant to a current investor?
<I note that JDSU (through the merger of ETEK and SDLI) is their biggest competitor. What pricing pressures can JDS put on the much smaller company?>
The CTO of AVNX is from ETEK, so they should be pretty aware of their competition. Management is solid. Engle is from Agilent were he was Vice President and General Manager of the Fiber Optic Communications Division, Alessandrini was President and Chief Executive Officer of Pirelli Cables and Systems North America and CTO Simon Cao has these accomplishments:
Dr. Cao's research and development experience includes these firsts in optical science:
First demonstration of all optical logic operation with near unit photon number in non-linear CS gas cell.
First experimental demonstration of signal image correction property in optical fiber with four-wave mixing phase conjugation.
First demonstration of the most efficient blue light generation by laser diode second harmonic generation in quasi phase matching LiNbO3 waveguide.
First comprehensive study of Annealed Proton Exchange LiNbO3 waveguide.
First demonstration of 60 Gb/s LiNbO3 electro-optic modulator.
First demonstration of linear LiNbO3 modulator for CATV application.
First demonstration of 128-channel RGB electro-optic modulator for HDTV laser display.
His product development experience is similarly impressive:
Commercial LiNbO3 electro-optic modulator, including 800 MHz linear modulators for CATV application, 2.5 Gb/s, 10 Gb/s, 20 Gb/s, and 40 Gb/s digital modulator. 2x2 EO switch, polarization controller.
World-first commercial polarization insensitive fiber isolator.
World-first integrated isolator/WDM/tap coupler/PD product for compact EDFA amplifier applications.
World-first dense WDM filter products, starting from two-channel WDM in 1992 to 320-channel HDWDM in 1998.
World-first 64x64 fiber optic switch matrix.
World-first compact and low loss circulator.
World-first precision wavelength locker.
World-first 128x128 compact fiber tree and star coupler.
World-first tunable chromatic dispersion compensator.
Tunable FP fiber optic filter.
World-first optical IP/ATM based Petabit/sec optical wavelength router.
World-first programmable 160 wavelength channel optical ADM and OXC.
Pricewise, the PowerMux started at $500 per channel and has decreased to around $400 per channel. The PowerMux NxG will start at $300 per channel and they hope to drop it to $100 within a few years. They are very competitive.
Profitwise, breakeven is estimated at 22 million. They did a little over 18 million this quarter.
<I firmly believe the strong will survive and if AVNX stumbles to the point it needs to merge, it will lose the licenses now controlled by Fujitsu.>
At the current burn rate, and the amount of cash they have, they could survive the current environment for nearly 5 years without further cutbacks or re-orgs.
There's no doubt they're small, and there's risk associated with that alone, but they seem well capitalized, good management with a solid track record, and cutting edge technology. To me, it's worth a shot. BTW, a fund just scooped up 10% of the stock, which is why they had to adopt a Stockholder Rights Plan.
<At any rate, let's work together and find the best and strongest companies for the next wave of technology investing.>
I'm working hard, taking all the help I can get, and am willing to share when the apple hits me on the head every now and then. If I'm dead wrong on this one, I'd certainly like to know, I'm up to 19,000 shares, and considering increasing the position if it falls lower.
Best,
Kent |
