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

To: E_K_S who wrote (1897)	3/2/1999 1:20:00 PM
From: Roy F	Read Replies (1) \| Respond to of 3299

Mar 02, 1999 FOOL PLATE SPECIAL An Investment Opinion by Alex Schay Xylan "Switches" to Alcatel After a run-up of around 40% in the last two weeks, data networking firm Xylan (Nasdaq:XYLN - news) gained $9 1/8 to $36 1/16 this morning on the heels of the announcement that it will be acquired by French telecommunications giant Alcatel SA (NYSE:ALA - news) for $37 a share. The $1.9 billion deal comes in at 5 times Xylan's trailing sales, roughly 48 times trailing earnings (35 times forward numbers), and around 34 times trailing cash flow. The deal is hardly a surprise considering Alcatel's oft stated desire to fill in all the gaps in its product portfolio (DSC and Packet Engines). In fact, this morning Alcatel Chairman and CEO Serge Tchuruk announced that a deal to acquire a remote access equipment provider is also in the works and will be formally announced in the next couple of days. Alcatel owns roughly 6.5% of Xylan already, and the two companies have engaged in numerous joint technology agreements over the last four years -- with Xylan raking in about 12% of its 1998 revenues from Alcatel (Xylan had a 20% revenue target in 1999 for Alcatel and IBM (NYSE:IBM - news) combined). Considering that Xylan is currently working with over 100 carrier customers around the world, it's a natural fit for the firm to become the enterprise data networking hub for Alcatel. Evidence of the strategic necessity of incorporating "data solutions" into telecommunications' portfolios has already been amply documented over the last two years with Northern Telecom (NYSE:NT - news) purchasing Bay Networks and Lucent (NYSE:LU - news) recently acquiring Ascend Communications. However, Cisco's (Nasdaq:CSCO - news) presence in the game really makes the race -- at least for the moment -- a question of who will come in fourth place. With the European market growing off of a much smaller voice and data base, there is enough room for the major European players -- Alcatel, Ericsson (Nasdaq:ERICY - news) and Siemens AG (OTC BB:SMAWY) -- to garner a nice share of the pie. However, with Xylan rolling out some interesting products this year -- the OmniStack402G and OmniStack branch switches, plus the OmniCore ATM and gigabit backbone switch -- it looks like a newly reorganized Alcatel might pull ahead going into the first turn.

To: E_K_S who wrote (1897)	3/2/1999 3:20:00 PM
From: Douglas V. Fant	Read Replies (1) \| Respond to of 3299

Eric, Let me give it a try. As I posted here a couple of notes ago long haul data traffic is estimated to increase from 0.6 billion gigabits in 1998 to 13.7 billion gigabits in 2005. Voice traffic is estimated to increase from 2.0 billion gigabits in 1998 to 5.0 billion gigabits in 2005. Now the great "perpetrator" in creating demand to move this much data will be first the Internet, and second the desire to move larger more complex files such as voice and video. Intel's CFO noted at the recent Robertson Stevens Tech Conference that 1,000,000 people will be wired to the Internet in 2005 as compared to (correct me if I'm wrong here) 220 million people currently- a 400% increase in connections in only 6 years. Now whether data moves by fiber optic cable, coaxial cable, twisted pair lines juiced by xDSL, or wireless for e.g. LDMS, phsyical systems need to be built out all over the world and also upgraded to handle higher bandwidth traffic. The only piece for which I am not sure that AFCI's equipment is needed would be broad area satellite data transmissions. I am assuming "no". Higher bandwidth means more xDSL upgrades of twisted pair, more cable, both coaxial and fiber optic, and more wireless buildouts will occur. Hopefully AFCI can participate in that system buildout...

To: E_K_S who wrote (1897)	3/2/1999 9:40:00 PM
From: E_K_S	Read Replies (4) \| Respond to of 3299

More on the GEC's Reltec buy out.... GEC Buys Reltec For $2.1 Billion (03/02/99, 6:42 a.m. ET) By Reuters General Electric Co. of Britain, moving quickly following the sale of its former core defense business, bought Reltec of Ohio, a closely held telecommunications equipment maker, for $2.1 billion Monday. (http://www.techweb.com/wire/story/reuters/REU19990302S0001) From the article:"..."What we announced today is the first of hopefully what will be a series of acquisitions in this field," Simpson said..." From the article: "...At twice Reltec's annual sales, which have grown at more than 20 percent a year, the price was "good value," Simpson said..." ===================================================================== AFCI's sales are $4.11/share....equivalent price $8.22 + 1.37 cash = $9.59. The key in this analysis is GEC used a Price/Sales analysis for their valuation. AFCI should be valued by the street at 2x sales and therefore any new contract obtained could be worth $2.66/share for each $100 million value in new contract sales. Any large RBOC contract will add immediate value to the share price....any lost contract sales will reduce share price accordingly down to book value of $3.44 (per share cash value is now at $1.37). IMO still a speculative buy at this time. It is interesting that the market now values this industry at 2x's current sales. EKS