Opportunities
Stambovsky, Jeff
OPPORTUNITIES by Jeff Stambovsky The Avanex Advantage After the fall, a great fiber optics play. Perhaps the most exciting break-through of the last decade in the practical end of the...
...Not nec-essarily...
...Avanex's breakthrough technology is cru-cial to both and the company's execu-tion so far has been superb...
...The trick is to keep the lamb-das from drifting off center and interfering with each other...
...On a per lambda basis, Avanex has driven down prices an order of mag-nitude in a little over a year...
...Expect the company to gain market share rapidly and dominate the WDM market within a few years...
...A three-year-old prodigy that just went public last February, Avanex surprised Wall Street when it turned its first profit in the most recent fiscal quarter, handily beat-ing the expectations of most analysts...
...52 February 2001 o The American Spectator...
...Cisco grew its top line 50 percent last year, and it is a much larger and older company in a much more mature mar-ket...
...Consider some of the multiples prevailing in early January, even after a nine-month process of compression, the worst year in NASDAQ history and the worst performing Dow in 19 years: CIEN-30, BRCM-28, SCMR-30, JDSU-21, CSCO-15...
...And the Avanex devices are easier to manufac-ture for the same reason they work better: Whereas competing designs can require the precision alignment of hundreds of elements, the Avanex multiplexer (called the "PowerMux") has only two and is self-aligning...
...S till isn't 50 percent annual sales growth from now to 2004, and beyond, a bit of a stretch...
...That's a 50 percent annualized growth rate...
...The Avanex engineering team, led by Chief Technology Officer Dr...
...Industry consultant RHK, Inc...
...OPPORTUNITIES by Jeff Stambovsky The Avanex Advantage After the fall, a great fiber optics play...
...A measure of how diffi-cult this is, is that when the first com-mercial WDM systems were introduced, barely five years ago, they placed only two JEFF STAMBOVSKY is a senior analyst with Gilder Publishing, publishers of the Gilder Technology Report and other strategic publications for technology investors...
...WDM enables network builders to send heretofore unimaginable amounts of data down hair-thin strands of optical fiber...
...He may hold positions in stocks discussed in this column...
...At 20 times sales, the 2004 Avanex would be worth $20 billion or about $307 per share...
...WDM is the art of placing more than one information-bearing light beam on a single fiber, which is achieved by using different wavelengths (actually bands of wavelengths, called "lambdas") of light as carriers...
...Spectator readers who use this information for investment decisions do so at their own risk...
...Even at CSCO's price to sales multiple of 15, Avanex would be worth almost $230 a share, up nicely from early January's $62...
...That requires lots of expensive electronic processing...
...Expect the company to do far better than hold its own, however...
...Today virtually all data networks require different users to share the same circuits...
...What is a company with a sustainable 50 percent growth rate and $1 billion in sales (with healthy margins...
...Assum-ing that the game is nowhere close to over in 2004 and that Avanex continues to execute, a multiple of 20 times sales seems reasonable...
...or four lambdas on each fiber...
...Beam me up, Simon...
...Assuming that Avanex merely holds its own, the $1 billion sales mark should be in reach within the next three or four years...
...Avanex's historical growth rate, to the extent that the number is even mean-ingful, has actually been well in excess of 50 percent: Quarterly sales went from S4.4 to $34.8 million on a year-over-year basis, and from $19.3 million to the same S34.8 million sequentially...
...Con-sensus estimates call for annual sales exceeding $200 million in the coming fis-cal year...
...Simon Cao, is pushing that number to a thousand, and in the lab, to a hundred thousand...
...Eighteen months ago, 32 was state of the art...
...But Avanex's breakthroughs hold out the promise of a return to clas-sic circuit switching, with every user hav-ing his own waveband, dramatically speeding the network, and cutting costs...
...Our broadband future -high-definition teleconferencing, movies-on-demand, three-dimensional holographic TV, long distance virtual reality, Captain Kirk-ish "telepresence" -largely depends on the continuing progress of two trends: Rapid-ly increasing the carrying capacity of fiber optic circuits, and switching and routing the light beams carried on those circuits ever more cheaply and efficiently...
...projects that the market for WDM equip-ment, presently estimated at $5 billion annually, will grow to $24 billion by 2004...
...Not only does that sort of scale huge-ly increase the carrying capacity of a sin-gle fiber, it will eventually change the entire architecture of data networking...
...Perhaps the most exciting break-through of the last decade in the practical end of the communica-tions sciences lias been the development of Wavelength Division Multiplexing...
...Not only is Avanex's patented WDM technology far superior to competitors in the number of lambdas it can place on a fiber, it is cheaper...
...likely to be worth...
...So how much is Avanex worth, or will it be worth by say 2004, compared to early January's stock price of around $62...
Vol. 34 • February 2001 • No. 1
