Archive for May, 2006
The Future of FTTH in China - Part I
Fiber to the Home (FTTH) and Passive Optical Networks (PON) in particular have received an inordinate amount of attention from the financial community in the last year. Attention has been focused at every level of the value chain, from component companies that make chips and optics to Telecom Equipment and Set-Top box makers to Carriers who are deploying services like IPTV over a new fiber infrastructure. The resurgence in the market performance of optical stocks was (incorrectly we believe) attributed to FTTH and other broadband services.
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Bookham CEO on Optical Industry Models
In a stroke of timing that a few people have pointed out cannot be a coincidence (and I can assure you it is) Bookham Inc (BKHM) CEO Giorgio Annania pens an article for CompoundSemiconductor.net about the future business models of the optical component industry and what role he intends for Bookham to play. I recently published my thoughts on the impact Chinese manufacturing might have on the business, and the benefits and risks of Bookham’s vertically integrated model when applied to lower volume telecom businesses.
The article revisits the well known fact that there are too many suppliers in the optical component business and that there needs to be consolidation.
Hat tip to FiberDeviceBlog
Vonage - Lipstick on a Pig
Unless you’ve been under a rock you have probably heard that Vonage (VG) went public Wednesday. It’s off 25% as of right now.
Seeking Alpha summarizes the recent opinions here.
I wrote back in February what I thought about Vonage. Nobody liked it then, nobody liked it Wed. morning, yet Deutsche Bank and Citibank managed to rally the throbbing VoIP masses to get this deal done.
This is a case where they certainly earned their fee with a spectacular sales job.
I’ll be the first to call it - the class-action attorneys are going to try and monetize the Vonage customer class of shareholders that took 13.5% of this deal. Vonage used tactics of a bucket-shop, pitching yours truly by email, voicemail, and snail mail. Fair? No. Reality? Yes.
Bookham, China, and the Optical Component Market
Recently, I sat down with Giorgio Anania, CEO of Bookham Technology (BKHM). We discussed a number of things, including the emerging competition of Asian optical component manufacturers. My conversation with him was about the industry in general, and not specific to Bookham.
We like to identify macro technology trends and disruptions then determine the best way (if any) to invest in them by following up with individual technical (as in technology, not charts) and financial analysis. Discussions with gentlemen like Giorgio Anania help me start this process. At this time I’m far from finishing it.
One trend I see unfolding is the emergence of Chinese optical component companies. Every company is moving their labor intensive component manufacturing to Asia (including Bookham) either through outsourced manufactuing or directly owned facilities in low-cost labor areas.
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Seattle RFI for FTTH
Seattle has issued an Request for Information for a large municipal fiber to the home/business build out. Requirements are sparse other than a minimum speed of 25Mbs with easy scalability to 100Mbs, 100% citywide coverage, and a target completion date of 2015.
This is the first big US municipality with such an RFI. Seattle has a broadband penetration rate well above the national average.
Website with more info and RFI .pdf here.
$50 says Qwest submits a bid. What odds do you want?
Why I Don’t Own Optical Component Stocks (yet)
A common question I receive is “What optical component equities do you like”.
My answer is pretty simple.
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Options Backdating Reloaded
Looks like the WSJ managed to purchase some more computer time for their options backdating algorithm and in this mornings paper they name the new five lucky winners - click on the graphic to the right.
This issue is of interest to me since I spent over 10 years at Vitesse Semiconductor (VTSS), a company that has been roiled by this issue in the last month. It’s also one of many reasons why incentive options should always be accounted as an expense and included in pro-forma results.
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Tivo - The Road Not Taken
Davis Freeburg, the best Tivo (TIVO) blogger on the planet, has a thoughtful post at Thomas Hawk’s website. He draws parallels between the advertising ‘upfront’ media buys and where Tivo is eventually heading.
All and all it is interesting watching TiVo as the vanguard of where advertising is headed on your television. Advertising, ironically enough for an ad zapper, is probably more important to TiVo than just about anything for them right now. While TiVo makes far more money from a standalone subscriber, the explosion of TiVo users in the years ahead are more likely to come from the major cable deals that they are striking with folks like Comcast (and many more surely to come shortly). In these deals TiVo makes much less money per subscriber but is entitled to valuable advertising revenue from a far greater audience.
Davis appears to be of the opinion that Tivo can have it’s cake and eat it too - win big deals with companies like Comcast while extracting ad revenue bundled with broadband content distribution.
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Intel - First, Fire the Marketing Guy
I reviewed the slides presented by Paul Otellini at the Intel (INTC) 2006 Annual Meeting.
The most interesting one puts the recent market share decline in perspective. What surprised me was the big leap back in ‘95, when the Pentium branding pulled the rug out from under AMD (AMD) and Cyrix who had ‘cloned’ the i486 nomenclature. That was a masterful marketing move, second only to the best one in semiconductor history, Intel Inside.
Upcoming Vacation - Contributors Wanted
In exactly one month I leave for my bi-annual cycling trip to Europe. I’ll be riding through the Southern French Alps with a number of friends from previous trips.
Contrary to media blabbering about how Europe is oh-so-more-plentiful with broadband access, my experience is that outside major cities, ‘Le Internet’ simply doesn’t exist in France. I’ll be carrying my Cingular 8125 (Made by HTC (2498.TW) which will provide connectivity but posting will be limited, perhaps only a few notes and photos of my journey.
Aside from the connectivity issue, I simply will not be spending any time writing for this site. Rather than let it go dark, I thought this would be a good opportunity to allow others to contribute stories.
Here are the rules:
- Need the story completed by June 16th, before I leave
- Should be tech related, finance related, or both
- The more opinionated, the better. No marketing fluff.
- Posts can be anonymous, from corporate sources, or individuals
- Abstracts due June 5th
Contact me here if you are interested, or simply comment below on topics you would like to see written up.
The Four Horsemen of Web 2.0
Cisco (CSCO), Oracle (ORCL), Sun (SUNW), and EMC (EMC) were the darlings of the internet boom and were referred to as the ‘Four Horsemen‘. Your broker was overheard in 2000 “Yes, things are in fact a bit irrational but these companies have real products, revenues, and earnings and are investment-grade leaders of the new economy.”
Your broker neglected to mention that the biblical Four Horsemen of the Apocalypse were steered by four riders - Conqueror, War, Famine and Death. I’ll leave it to my readers to pair them appropriately.
NTT - Hedge Your Dollars
The Dollar has been in a free-fall against the Yen. There are a number of reasons, most related to the coming end of ZIRP and the repatriation of massive amounts of Japanese capital that was borrowed for nothing and invested offshore. The reasons are beyond the scope of this blog but sentiment appears to be turning against the dollar.
California’s Google Gold
It’s good to see that the web is still wild. I happened upon a site called F_ck_dGoogle.com (edited), a site filled with such vitrol for Google (GOOG) it’s an entertaining read. Considering how so many fawn over the company and it’s prospects, it’s nice to see a site filled with contrarian opinion, however unprofessional.
The post that caught my eye linked to an article in Tuesdays San Francisco Chronicle newspaper that detailed the sheer magnitude the Google stock option windfall has had on California state tax receipts.
In 2005, officers, directors and other insiders at the largest 200 publicly held companies in the Bay Area sold a total of $9.6 billion in stock, up from $7 billion in 2004, according to Thomson Financial. Google alone accounted for almost half of the 2005 total.
George Gilder - Telecosmic
The Wall Street Journal published a biographical article (free till May 10th) on George Gilder, one of the chief exhalers that inflated the optical bubble of 1999.
I mentioned Gilder last week in my first post on Wintegra (WNTG). He has consistently spoken positively of a network processor company called EZ-Chip and the holding company LanOptics Ltd. (LNOP). His support for the company has been unwavering for years as he continues to predict an NPU revenue ramp for EZ-Chip 6 months into the future. I hope this isn’t because EZ-Chip is a leading sponsor of his annual Telecosm shindig. How about some introspection into why things aren’t working out as he projected?
AT&T and The WildBlue Yonder
AT&T announced a push into satellite broadband access for rural customers by reselling service from Wildblue.
GigaOM has a quick summary, while Dailywireless.org (a great site) has more extensive technical detail for gearheads like you and me. The satellite protocol borrows heavily from DOCSIS, and runs at first generation DSL speeds (1.5M down, 256k up). This won’t set your hair on fire, but the rancher in Montana who has used dial up for 10 years will see this as a big improvement.
Vonage IPO - Grassroots Desperation?
I’ve written very little on the Vonage Holdings Corp. IPO.
Just received via email:
Dear Valued Vonage Customer,
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Wintegra - Following up on a Comment
I received a good question on the Wintegra Inc. (WNTG) post I made last week. I felt the response was worth a post on it’s own. Please remember this is not investment advice, and not a negative outlook on Wintegra as a comapny, just my opinion of something that needs to be considered when attaching a multiple and valuation to the company. References to Teknovus and Passave are in context with the previous post.
From “Watcher” -
I don’t really understand your Cisco example: according to your example Cisco doubled its purchasing from Wintegra in 3 years (2003-2005): 27% of $4.5M in 2003 to 10% of $19.5M in 2005: can you explain this again (why doubling sales to Cisco is a problem)?
You ask a good question. In the interest of brevity I oversimplified my argument. Let me explain in detail.
Insightful Berkshire Hathaway Quotes
A compiliation of the best Warren Buffett/Charlie Munger quotes from the most recent Berkshire Hathaway Annual meeting and newsletter, submitted by a Nyquist investor.
Wintegra - Good Company, High Valuation
Get ready to party like it’s 1999 - Wintegra, Inc. (WNTG), a network processor company, is going public. Prospectus here. Financial summary here.
Wait - the mob cries “This Time It’s Different” - Wintegra doesn’t make those ridiculously large 10G and 2.5G NPU’s that tech messiah George Gilder preached were the salvation of the coming optical revolution. (He still does, BTW - what is EZ-Chip paying this guy?). No, Wintegra’s NPUs are for the access network, Fiber to the home, DSL, i.e. the current pump-and-dump sector for Telecom.
Chinese Drinking Culture
The China Economic Review Editor’s Blog has a series of ongoing articles filed by an individual walking across China to Mongolia.
He is currently in a very remote region of China - the Dabie Mountains - and as a Westerner, is constantly accosted by peasants with surprisingly capitalistic streaks. Everyone, everywhere it seems is angling for a share of China’s economic growth - even the watermelon farmers. It’s great to see. If you are inerested in Chinese culture, and what happens outside the big cities, these blog posts are worth reading.
