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FOOL PLATE SPECIAL
An Investment Opinion by Alex Schay
Ciena Disconnects
Ciena Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %>, a provider of bandwidth enhancement technology for fiberoptic communications networks, was cut $13 15/16 to $44 3/16 this morning after announcing in conjunction with its Q1 1998 results that a major customer, WorldCom Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %>, will delay ordering new equipment until "the latter part of 1998." The company also announced that it expects operating expenses to rise and gross margins to narrow for the year, due in part to its acquisition of lower gross margin business ATI Telecom International, a provider of telecommunications engineering and installation services. Ciena reported Q1 EPS of $0.37, which beat both estimates and Q4 1997 results by $0.02. The results represented a 184% increase over Q1 1997 EPS of $0.13. Ciena's ability to more than double revenues (149%) and earnings per share in the span of a year is a tribute to the company's technology as well as the rapidly evolving telecommunications equipment landscape.
Ciena noted that the WorldCom delay will result in Q2 revenue that is "sequentially flat or possibly lower" than the first quarter. This is hardly surprising considering that Worldcom and Sprint Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %> accounted for 95% of Ciena's sales in 1997. Detailing the nature of the delay, Ciena reported that WorldCom was changing its purchasing policy. WorldCom (which recently reported that it sees its high growth continuing) wants to align its bandwidth requirements along with incremental demand, a kind of "just in time" (JIT) bandwidth policy. Although not really JIT, WorldCom wants to reduce its equipment orders to one year's worth of bandwidth boosting technology from two year's worth. Ciena was adamant in its Q1 conference call that it has a "solid continuing relationship" with WorldCom, and even went so far as to say that in the event of a competitor emerging with an equivalent line of products, the company would remain WorldCom's "supplier of choice." Ciena also was quick to point out that it had "re-confirmed" that Sprint's "commitment remains strong."
Part of the reason for the company's confidence is the nature of Ciena's products and the fact that capital spending in the telecommunications equipment market has begun to eerily resemble the semiconductor capital equipment segment. Although costs are not cut in half and technology performance does not double every 18 months, upgrades have become a necessity in order to stay in the game. Total broadband equipment spending has been accelerating at a compound rate of 45% over the past four years. In addition, the $200 billion infrastructure market is in the throes of global transition and in the early stages of a multi-decade spending cycle. Ciena's dense wavelength division multiplexing (DWDM) products (with its second generation Sentry product accounting for 35% of revenues in the latest quarter) alleviate transmission bottlenecks in high-traffic, long-distance fiberoptic routes caused by rapidly increasing utilization rates. Its products are preferable to the installation of new cable and the upgrading of capacity to higher electronic transmission rates, primarily because of cost and the scalability of Ciena's products as well as client desire to maximize the performance of existing fiber.
Ciena stated in its conference call that it is still "comfortable" with 1998 revenue estimates of $600 million (due to the hope that AT&T and others might fill the revenue shortfall). The company also provided guidance that it expects gross margins to narrow to the 52-55% range and operating expenses to possibly rise to 32% of revenues. Using the conservative end of these figures, Ciena may still make $120 million in operating earnings for the year. Ciena currently trades at 30 times 1998 EPS estimates of $1.47 on mean revenue estimates of $565 million.
Internet usage tracking and advertising services company DoubleClick Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DCLK)") else Response.Write("(Nasdaq: DCLK)") end if %> gained $14 to $31 from its initial public offering (IPO) price of $17 per share. Counting an over-allotment option that will almost certainly be exercised by the underwriters, the company is selling 4.025 million shares and was priced by the IPO process at approximately $312 million, based on shares outstanding plus in-the-money options. That works out to a little over 10 times revenues and about 4.5 times year-forward revenues based on established sequential growth trends.
GTECH Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTK)") else Response.Write("(NYSE: GTK)") end if %> hit the jackpot, winning $2 7/16 to $34 1/16 after the company announced that the Texas Lottery has terminated the new procurement process it initiated last August for the acquisition of products and services currently provided in part by GTECH because it was "not satisfied with the costs" of the proposals. GTECH, which supplies computerized online lottery products and services, was awarded the initial Texas Lottery contract when the lottery was started in 1992.
Laser manufacturer Laser Power Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LPWR)") else Response.Write("(Nasdaq: LPWR)") end if %> gained $1 to $7 after announcing that it has received a Notice of Allowability from the Patent and Trademark Office on a patent of a concept that increases the efficiency of its microlasers. Yesterday the company also announced the receipt of the first two orders for its T-2000 Series high-power 1550nm microlasers designed for fiber optic communications applications.
Seismic data acquisition systems maker GeoScience Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSCI)") else Response.Write("(Nasdaq: GSCI)") end if %> leapt forward $1 1/4 to $11 1/2 after announcing fourth quarter earnings (from continuing operations) of $0.23 a share versus $0.17 for Q4 1996 and in-line with the First Call mean estimate.
Precision timing and frequency products maker Datum Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DATM)") else Response.Write("(Nasdaq: DATM)") end if %> powered up $1 3/8 to $16 13/16 after announcing fourth quarter earnings of $0.01 per share, topping the break-even estimate listed by First Call.
Paris-based insurance giant AXA-UAP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXA)") else Response.Write("(NYSE: AXA)") end if %> gained $2 1/8 to $47 1/2 after denying rumors that it was selling its U.S. securities brokerage Donaldson, Lufkin & Jenrette <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLJ)") else Response.Write("(NYSE: DLJ)") end if %>. AXA-UAP owns about 44% of the brokerage firm through its majority owned U.S. subsidiary Equitable Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EQ)") else Response.Write("(NYSE: EQ)") end if %>.
Spain's Banco Santander S.A. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STD)") else Response.Write("(NYSE: STD)") end if %> jumped $2 1/2 to $45 1/2 after the bank announced yesterday that it will pay $4.1 billion for the roughly 52% of Banco Espanol Credito S.A. (Banesto) it doesn't already own. In a statement confirming Banco Santander's creditworthiness, Moody's said it believes the purchase "should give rise to opportunities for both efficiency and revenue enhancement for the entire group."
Callaway Golf <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELY)") else Response.Write("(NYSE: ELY)") end if %> jumped $1 9/16 to $32 9/16 after Business Week worked its weekly tip sheet magic by publishing the opinion of a money manager who thinks the golf equipment maker would make a nice acquisition for Nike <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %>. Money manager George Cohen of Cohen Klingenstein & Marks says Callaway is worth $45 a share to Nike. According to Technimetrics, Cohen's firm increased its position in Callaway by over 274,000 shares in the second quarter, or about 50%.
Zoom Telephonics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZOOM)") else Response.Write("(Nasdaq: ZOOM)") end if %> rallied 11/16 to $7 7/8 after the data network access products maker reported fourth quarter earnings of $0.04 per share compared with a loss of $0.03 in Q4 1996.
Hong Kong-based Deswell Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSWLF)") else Response.Write("(Nasdaq: DSWLF)") end if %> climbed $1 1/2 to $18 1/2 after reporting third quarter EPS of $0.78 versus $0.59 for the prior-year period. The plastic parts and electronic component manufacturer said it plans to "use our strong financial position and cash flow to aggressively fund the continued expansion of our business."
Nutraceutical International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NUTR)") else Response.Write("(Nasdaq: NUTR)") end if %> rose $1 7/8 to $19 3/8 this morning from an initial offering price of $17.50 on approximately 3.3 million shares. The IPO price on the nutritional supplements company was higher than the original price talk of $14 to $16 per share and the revised range of $16 to $17.
Software and information systems company Broadway & Seymour <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BSIS)") else Response.Write("(Nasdaq: BSIS)") end if %> dropped $1 to $7 3/4 after reporting Q4 EPS of $0.09, in line with the First Call mean estimate. The company added, however, that it expects to see little or no profit in Q1 due to the postponement of a major contract at its Elite Information Systems subsidiary and "timing of major bank customer commitments." The street was expecting first quarter earnings of $0.12 per share.
Athletic shoe maker Converse Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVE)") else Response.Write("(NYSE: CVE)") end if %> sank $9/16 to $6 9/16 after posting a Q4 loss of $1.03 per share versus a $0.50 per share loss a year ago, which was much wider than the First Call consensus estimate of a loss $0.29 per share. The company blamed lower gross profit margins and inventory oversupply due to an industry-wide weakening in sneaker demand for the lower-than-expected results.
Work platform and aerial lift manufacturer JLG Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JLG)") else Response.Write("(NYSE: JLG)") end if %> slipped $1/2 to $15 after yesterday reporting fiscal Q2 EPS of $0.17, which beat the First Call mean estimate of $0.15. Operating earnings fell 29% year-over-year but improved 39% sequentially (before a Q1 charge) even though this is the slowest quarter for JLG, seasonally. The company's president and CEO added that he was "comfortable with the upper range of analysts' expectations" for earnings and revenues in fiscal 1998 as inventories normalize in the industry.
Cable TV equipment maker Blonder Tongue Laboratories <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BDR)") else Response.Write("(AMEX: BDR)") end if %> lost $1 1/16 to $14 7/8 after reporting Q4 EPS of $0.20, up 33% year-over-year, but a penny short of the First Call mean estimate.
Memory and communications card supplier SMART Modular Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMOD)") else Response.Write("(Nasdaq: SMOD)") end if %> declined $6 1/16 to $29 15/16 despite reporting Q4 EPS of 0.35, beating the First Call consensus estimate by $0.02.
Embroidery machinery maker Hirsh International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HRSH)") else Response.Write("(Nasdaq: HRSH)") end if %> plummeted $10 1/8 to $11 1/2 after saying that Q4 EPS will be "breakeven or better" when the company reports earnings, likely before the second week of March. The company said the "migration" of some of its large apparel customers to Mexico is causing its market share growth to stall in the multi-head machine segment. Analysts had been expecting EPS of $0.33 to $0.35.
PMR Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMRP)") else Response.Write("(Nasdaq: PMRP)") end if %> lost $6 9/16 to $12 after the mental health services provider reported Q4 EPS of $0.18, which was in line with the street estimate. However, the company said its largest customer has been informed by the Health Care Financing Administration that one of its PMR-managed programs will no longer be considered "provider-based" for Medicare reimbursement purposes.
Automated software and Year 2000 company INTERSOLV Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISLI)") else Response.Write("(Nasdaq: ISLI)") end if %> tumbled $3 5/16 to $16 9/16 despite reporting Q4 EPS of $0.24, which beat the First Call mean estimate of $0.19.
Computer component maker Adaptec Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADPT)") else Response.Write("(Nasdaq: ADPT)") end if %> slipped $2 5/16 to $23 5/16 this morning. The company announced yesterday that it would acquire Symbios Inc., a semiconductor subsidiary of Hyundai Electronics America, in an deal valued at $775 million.
Heating control device manufacturer Research Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RESR)") else Response.Write("(Nasdaq: RESR)") end if %> fell $7/8 to $5 1/4 after announcing yesterday that it would combine its control systems business with its thermal solutions division and reduce its workforce. The restructuring will result in a one-time charge of about $600,000 to Q2 earnings, the company said, resulting in a larger-than-expected loss for the quarter.
Remote data exchange products maker Puma Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PUMA)") else Response.Write("(Nasdaq: PUMA)") end if %> lost $9/16 to $6 3/4 despite reporting fiscal Q2 EPS of $0.03, which was in line with the First Call consensus estimate.
Wireless messaging systems provider Centigram Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CGRM)") else Response.Write("(Nasdaq: CGRM)") end if %> lost $13/16 to $13 1/4 after reporting a fiscal Q1 loss of $0.85 per share, which was wider than the loss of $0.57 per share forecast by analysts surveyed by First Call. The company blamed the loss on the delay of a few large orders by customers in Asia and Latin America and weakness in its customer premises equipment business.
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Dale Wettlaufer (TMF Ralegh), Fool
Alex Schay (TMF Nexus6), Fool
Yi-Hsin Chang (TMF Puck), Fool
Brian Graney (TMF Panic), Fool
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