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Technology Stocks : Advanced Fibre (AFCI) ** IPO -- Ignore unavailable to you. Want to Upgrade?

To: j g cordes who wrote (1067)	10/12/1998 11:51:00 PM
From: Neurogenesis	Respond to of 3299

Hi y'all I'm a newcomer here, just picked up (Friday) 2K shares @ $5 even (in the IRA). Looks to me like a 'no-brainer' for a long-term hold. Selling at less than 1x sales, lots of growth, short term blah, but might rally either with the market or because it is simply (very) oversold (which it is, IMHO). Sure, it has the 'flu'. But it will recover. I don't care if they lose money this Q! In my opinion, what a steal!!!!

To: j g cordes who wrote (1067)	10/13/1998 11:40:00 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 3299

Jim, In general this is a pretty negative report by AFCI. They still can't replace the revenues lost due to the loss of the GTE contract and it does not look like that will be resolved anytime soon. Revenues were down 18,832 Q over Q. Revenues from GTE this Q 1.5 mil. Next Q 1.2 million. Last Q was the last of the large GTE expenditures with AFCI. They lost a RFP to a competitor for Bell South business due to price. Obvious pricing is a issue with the RBOC's. It doesn't look like the AFCI is willing to give on pricing at this point. This is reflected in the flat gross margin number of 43 percent. According to management RBOC's are concentrating of deploying low cost of parts services versus the high bit rate services (such as ISDN and ADSL) AFCI would benefit from. AFCI hopes this will change in 1999 due to competition from LEC's and other carriers, especially cable modems. [In light of an anticipated economic slowdown in 1999 this may push the demand further out] R&D expenses are up 5 percent which is good since they didn't cut expenses to maintain margin. Cash at 103 mil, essentially flat from last Q so cash from operations are not causing them to eat into reserves. Inventories are up 1.1 mil, but this is due to a large order that they will ship in Q4. So this is not an issue. They feel good about Q4 as a result of the order. No comment on the linearity of the next Q. DSO's is a huge 105 days up from 88 days last Q. This is due to more international sales. Also two customers did not pay in the Q as anticipated. One was European, so currency exchanges issues needed to be addressed. One just paid late and has promised to pay on a fixed schedule. Domestic customers are paying in 50 days. In Brazil the DSO is 350 days! [This is not good. It means they are shipping to less credit worthy customers.] They has only one 10 percent customer in the Q. 4 new customers in their top ten customers. 700 customers in total. They had 23 new customers in the Q. The quality of customers is an issue with the LEC's. Only a portion of them are sufficiently financed according to AFCI management. There are perhaps 4000 LEC's but only 200 are sufficiently capitalized. Total number of CLEC customers in Q 12. Total CLEC revenues 18 percent of total rev's in Q. [If your refer to the Telecommunication article reference I emailed at telecoms-mag.com you will note that 44 percent of the 3.7 bil. CLEC business was done by WCOM, MIC, TCG and that 12 companies accounted to 70 percent of the revenues in the sector. The 3.7 bil. is only a portion of the 100 billion local services market though. So AFCI revenues are essentially tied to 12 customers unless they can win an RBOC.] Latin American business is mixed. Venezuelan business was weak this Q. They think Brazil will be good going forward. [Visibility of orders is not very good. Their top ten customers list keeps changing.] It look like they have gained some market share from Reltec. The Sprint announcement mean Reltec will loss some business according to AFCI. AFCI is sharing this business with DIGI (now ALA) though. They are adding a 3rd party channel for some of their products in order to reach 500 cusotmers they could not reach otherwise. [The quality of these customers are an issue I feel as the volumes obvious do not justify AFCI selling direct.] Gross margins were flat due to product mix (shipped more high margin products), cost reductions and global outsourcing. [This is good considering the pricing pressure they are seeing.]. No guidance on margin for 1999. The China business actually declines Q over Q. They see near term weakness in China. They see some trade barrier problems. There is no Cap Ex slow down by the RBOC's are far as they know, but they have no RBOC contracts so they are not sure. They see no slow down in CLEC spending. They are only running on shift at their plant. They have surplus capacity. They are attempting to qualify to put in a proposal for an RFP with an customer by making engineering changes to their product. No comment on the timing of this RFP. In general, the slow ADSL deployment will hurt them, pricing pressure will keep margins flat if not declining. They still don't have a proven process for winning RBOC business. This Q price was an issue. Their ability to service brought up last Q may also still be an issue. International business is mixed. Visiblity and linear of orders is unpredictable.