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 : ONI Systems Corp. (ONIS) -- Ignore unavailable to you. Want to Upgrade?

To: Labrador who wrote (139)	12/4/2001 1:17:20 PM
From: Maverick	Read Replies (1) \| Respond to of 227

SSB:4Q MAY BE ON TRACK DESPITE CONCERNS, WE ARE NERVOUS ABOUT 1H02 Excerpts from Salomon Smith Barney ~ December 4, 2001 follow. We had an opportunity to meet with senior management at ONI Systems during our Silicon Valley bus tour. The constructive takeaway is that the company seems poised to meet expectations for the 4Q timeframe. This is in spite of cautious commentary that was attributed to the company related to their presentation at a competitor's conference recently. According to management, they did not intend to convey any change in confidence in their outlook. This is an incremental constructive data point as we were quite concerned with the 4Q outlook given the tough economic conditions. However, our viewpoint on the outlook for 2002 remains unchanged. We still believe that 2002 numbers are at risk as we believe that their orders from Qwest are likely to remain subdued for at least for the first quarter of next year. Furthermore, we question the timing of additional ILEC orders which was expected to be a key source of growth in 2002. Commentary At Competitors' Conference Taken Out Of Context. One of the issues that has recently impacted the shares relates to cautious comments attributed to management during a investors' conference presentation. During our conversation with management, they repeatedly reiterated did not intend to communicate a change in guidance, tone, or confidence. Specifically, they noted that they continue to see tough competition from Ciena (CIEN, 3H-- $17.06) and Nortel (NT, 2H--$7.47), consistent with previous management statements. What they did not state, however, was that it would be a stretch for them to meet their 4Q expectations. Their energetic insistence on repeatedly emphasizing this point leads us to believe that the current quarter is on track. This belief is bolstered by the fact that management suggested that the quarter was essentially completed. The company shut down operations for two days during the week of Thanksgiving and intends to shut down again during the week between Christmas and New Years. Furthermore, unlike in previous years when December quarter tended to be quite back-end loaded as customers attempted to exhaust their remaining annual budgets, management expects no such surge this quarter. Again this suggests that 4Q is essentially done and management's continued confidence in the outlook is a key data point. Still Concerned About 2002. While we are increasingly comfortable with ONI's ability to meet 4Q EPS expectations, we still harbor significant concern about the 2002 outlook. First, we believe that ONI's business is likely to suffer the drag of subdued spending from Qwest (Q, 1M rated by J. Grubman-- $11.88) into the 2002 timeframe. While we believe it is possible that the carrier's IP-related spending could rebound by the end of the calendar 1Q02 period, we think optical-related spending could suffer into 2Q. Second, we are concerned about whether the RBOC community will begin to meaningfully deploy next-gen optical systems in 2002 given the eroding competitive threat from emerging carriers. Management also acknowledged that visibility from the domestic ILEC community remained quite limited and cited pushouts in deployment timetables. On the PTT front, they did note that France Telecom and Deutsche Telecom remain some of the most aggressive in evaluating the technology but noted less current interest from British Telecom.