Ian --
Did you see this? Grivner certainly must not worry about criticism.
>>>
Top Stories: Advanced Fibre's Decline
Puts Independence on the Line
By Eric Moskowitz and Kevin Petrie
Staff Reporters
7/1/98 3:04 PM ET
Advanced Fibre Communications' (AFCI:Nasdaq)
meltdown vividly illustrates today's risks for
telecommunications suppliers, among them Asia's failing
economic health and roller-coaster orders from phone
companies.
But Advanced Fibre's downfall could make the company a
more palatable acquisition candidate. By early afternoon,
Advanced Fibre's shares were off 21 3/4, or 54%, at 18 7/16.
A rumored acquirer is Tellabs (TLAB:Nasdaq), a larger
phone-network supplier that owned nearly 9% of Advanced
Fibre as of February. Tellabs stock was up 1 1/2 to 73 3/16.
Advanced Fibre representatives didn't return a phone call
seeking comment, and Tellabs declined to comment.
Advanced Fibre said after Tuesday's close that it would post
second-quarter earnings of 7 to 9 cents a share, with
revenue in the $82 million to $85 million range. Analysts had
estimated that the company would earn 17 cents a share in
the quarter, compared with 11 cents a share in its year-ago
quarter, according to First Call. Advanced Fibre blamed the
depressed earnings on lower-than-anticipated sales in China
and the loss of a GTE (GTE:NYSE) contract. It also said
business with local phone companies is proceeding slowly.
Meanwhile, several company insiders, including the
company's outgoing chief executive, sold shares in advance
of the announcement.
Advanced Fibre builds equipment that helps phone
companies deploy multiple electronic phone lines to
customers, who in recent years have been clamoring for
extra connections to accommodate chatty teenagers and
their Internet habits. Its rivals include DSC
Communications (DIGI:Nasdaq), which reportedly won the
GTE account from Advanced Fibre. In early June, DSC
agreed to be acquired by Alcatel (ALA:NYSE ADR), a
French supplier of phone gear, for stock now worth $4.1
billion.
A key problem for Advanced Fibre is that sales faltered in
China, which to date has proven a rare bright spot among
Asia's roiled economies. The company blamed a
management reshuffling in the region, which required it to
re-establish ties with local distributors. But one former bull
who saw trouble brewing says Advanced Fibre is waving a
red flag for tech companies exposed to Asia.
"You're going to see more of this," says Morton Cohen,
chairman of Clarion Partners. "Get ready" for more damage
from the Asian "recession," he counsels.
Advanced Fibre also has reminded investors that doing
business with Baby Bells involves starts and stops. "What
people have forgotten in this roaring bull market is that
system sales [to phone companies] can be pretty lumpy,"
says Wendy Snow, who follows the sector for hedge fund
Lamoreaux Partners, which does not own stock in
Advanced Fibre or Tellabs. Indeed, Ciena (CIEN:Nasdaq)
scared investors in February when it warned that its
mammoth customer WorldCom (WCOM:Nasdaq) had
slowed orders temporarily.
Given the feverish consolidation in the networking industry,
Advanced Fibre might now find itself a discount takeover
target.
"It's a good product and a good company," says Snow at
Lamoreaux Partners. "If the stock stays here, it might get
taken out" -- perhaps by Tellabs.
Tellabs' market capitalization of $13.1 billion dwarfs
Advanced Fibre's $1.4 billion as of Wednesday. Still, even at
these levels Advanced Fibre remains expensive at 33 times
trailing profits and eight times revenue. And Tellabs is busy
integrating Ciena, which it one month ago it agreed to
acquire in a stock pooling valued at about $7.7 billion.
Caveats aside, their technologies might complement one
another. Tellabs builds so-called digital cross-connects for
telephone networks. Ciena will furnish Tellabs with premium
products that increase the capacity of optical fibers.
Together those companies will develop new optical
connection devices that ship messages exclusively in
photons -- the wave of the future. But AFCI's electronic
products still add value for lower-end network connections.
Meanwhile, complaints are streaming across Internet
message boards about insider selling at Advanced Fibre.
For instance, Carl Grivner, who resigned yesterday as chief
executive, bought 93,332 shares at 32 cents in October
1996, when he was the company's president and chief
operating officer. After that initial purchase, he started
selling
shares, according to data tracker Baseline. In May 1997 he
sold 50,000 shares at 23 5/8, and then in August he sold
another 66,000 shares at 34. This year, he made an
options-related sale in early February when Advanced Fibre
was at 30. In mid-April he made another options-related sale
at 43. And lastly, Grivner sold 11,700 shares valued at
$514,800 on April 29, according to Edgar Online. (Grivner
is joining Cable & Wireless (CWP:NYSE ADR) as chief of
its Western Hemisphere operations.)
In addition, since June 20 others insiders registered to sell
at least 14,000 shares.
Now, Advanced Fibre has a challenge. "The first thing
Advanced Fibre needs to do is re-establish its credibility,"
says Sonia Lamoreaux, a private investor who also sold her
entire position in Advanced Fibre three weeks ago when it
was at 42 because the stock "just got ahead of itself."
Still, the stock's fall also inevitably makes it more appealing
for some. Snow, at Lamoreaux Partners, which focuses on
small-cap stocks, finds investing in Advanced Fibre "pretty
tempting at this price.>>>> |
