Some Insight into Entropic Communications News Today

Entropic has been diligent at broadening its product offerings in a very smart way. Historically, the stock has not performed well because short sellers have kept the pressure high since learning Broadcom would be a competitor. Their thinking is that with Broadcom's scale, they would eventually price out Entropic and be the leader in the space.  Since Entropic boasts the largest market share, Broadcom would suck out its customers and thus sink Entropic or force a merger. But, today, it is now clear that Entropic's innovation lead on Broadcom is excellerating by the cleverness in how Entropic brought new products to market.
Entropic is doing very well at DTV. And DTV is doing well because of aggressive pricing.  DTV is able to offer aggressive pricing as a result of Entropic's innovation.  You see, Entropic designed products to smartly lower DTV's installations costs.  And if your Entropic, is there a better way to get customers?  I don't think so.

Entropic designed a new DBS Outdoor Unit (a dish) Solutions consist of our Band Translation Switch (BTS) and Channel Stacking Switch (CSS) products. What this does is this. A new customer signs up for DTV, a truck with a man comes and bolts it on the house, runs a coax cable to a splitter that connects to a super set top box with entropics MOCA 2.0 chips inside.  The other TV's in the house which want boxes are installed, but NOT hooked up to wires!!! It is wireless. Suppose, originally, only 1 TV wants DVR and the rest are just standard. Then suppose that the customer wants dvr capabilities on all the tv's. Guess what, DTV sends the codes to the Main Box in the house that enables the other boxes DVR capabilities.

This means Entropic has multiple chips in the outdoor unit and multiple chips in the Set Top Boxes!!!

This innovations is an improvement in that one installer spends a few minutes on the roof, goes inside and hooks up one Box to the cable, sets up the other boxes quickly.  This free's him up to upsell the customer by talking about features and benefits of the MOCA network.  No wonder DTV is kicking everyone's butt.

This is why Entropic has "won the living room" and soon they will be offering their proprietary boxes (before they only offered chips)! Broadcom, while an outstanding company, is simply too big to innovate as quickly as Entropic.

There should be a plethora of upgrades and price target changes in the coming days. And still 11m shares are short!! This will have some strong legs this summer!!!

Profit Taking Today

Its an outright ugly day in market.  But, it established a new uptrend last week on Wed and Thurs. Corn is down today, oil is down $2. Texas Instruments said the carriers have resumed growth, and 3M said china electronics have strenghtened.

jWells

Anadigics $ANAD Implications for Samsung Galaxy S III

Anadigics $ANAD is supplying 2 dual band amplifiers for power amps in the Samsung Galaxy S III at Sprint. This is huge win for ANAD.  This is by far the best win for them in years.  In the past they have only won a single band amplifier.  Now that have essentially 4 with this new phone and the demand is extremely hot.  Check out the article below on how Sprint can't fill the demand from pre orders.  Also, ANAD is supplying the same in a non Sprint Galaxy S III, but didn't say with which carrier.  My intuition tells me it is Verizon.  Not sure why they would not disclose it on the call.  They simply said the non Sprint Galaxy S III is ramping before the Sprint phone.  On the conference call on May 1, CEO was asked about revenue.  He said "we are ready to go" (meaning haven't shipped yet, just waiting for the word to process). He said there will be some revenue in Q3, but most revenue will start in Q4.  Compelling buy!!!

Sprint says they can't fill all of the orders because of its popularity!!! Great news for ANAD!!


http://www.pcmag.com/article2/0,2817,2406051,00.asp

Rally in Oclaro $OCLR

Oclaro is rallying on no apparent news as posted by Benzinga.  That's right, there isn't any news that I can find. Therefore, there are 3 possibilities to explain it. The first would be some positive news that has leaked.  I doubt this is the answer as Q2 isn't over yet and Oclaro is still in the midst of a merger (which will prove to be successful given Alain Coulder's merger history). The second would be a  competitor/customer has recently announced very positive news. There maybe some truth to this one. Ciena has reported decent business and a decent outlook. The third is short covering.  I think this is the answer.  There is currently 8m shares short which represents about 20-25% of the float, and I doubt that many shares were purchased recently. Also, we are seeing the same rally's in many low dollar shares without news.

KEEP THE PRESSURE ON!!!

jWells

Takeaways from Texas Instruments and the affects on Anadigics

To my knowledge, Texas Instruments is not a client for Anadigics. In the past, several executives from Texas Instruments went on to Anadigics, only to eventually leave.  Reason? Anadigics used growth from it's long ago largest client RIMM to upgrade it manufacturing process to some of the most complex and sophisticated anywhere in the world. These manufacturing upgrades will hopefully be a competitive advantage for Anadigics as it has positioned itself for the coming business semi business cycle.  Here is what they have done:

1. Placed emphasis in connecting automobiles to the internet.
2. Placed emphasis in getting on board with Qualcomm.
3. Placed emphasis in wireless infrastructure.
4. Placed emphasis in working with Huawei and ZTE.

TI said on the call that wireless infrastructure is very strong. Almost as strong as Q3 of 2011. TI also said industrial business is strong as well (Auto). TI said WCDMA business was very strong. Just weeks ago, Anadigics reported supporting Huawei's Honor phone. Anadigics has won design wins at Qualcomm. They have been designed into several new ZTE phones.

From Anadigics most recent conference call, Anadigics said they guided conservatively for Q2. They mentioned revenue from RIMM will only be $500k. Q2 might be the last of business from RIMM. Anadigics reduced cost by $8 million and said they will resume R&D beginning second half to support long term revenue streams.

I believe this one is a canary in the coal mine, and looks like the bottom might be in as we get ready for economic expansion beginning this July.

jWells  

$MMM 3M Takeaways at Deutsche Bank Global Industries Conference Bullish for Tech

"June is a big month for us and we have not seen anything yet that would result in a significant change for us". In China, right now we do see signs of a recovery in electronics.  We participate broadly in the electronics industry as we are a major supplier into that industry , and what we have seen,recently, is an uptick in semi fab utilization. Semi Fab utilization is a leading indicator that we monitor and higher utilization suggests growth within the electronics industry.

The S&P 500 turned strongly north at 954am est. A few minutes after 3M made comments on the call that business is doing well.

some small caps with excellent growth potential

3M's comments are:

Very Bullish for FSII, TQNT, ANAD

Bullish for OCLR, ENTR  

jWells

Updates on Ciena news and its Possible Affects on Supplier Oclaro $OCLR

Ciena reported today that Sprint is upgrading its network with Ciena Coherent Optical Technology.  This news is bullish for Oclaro as Ciena is one of Oclaro's top 3 clients.

Jwells

$TQNT Triquint Semi Takeaways from the Texas Instruments Call

After listening to Texas Insturments Conference Call, I am confident that business at Triquint is doing as least as expected, if not better.  Triquint gets 30% of revenue from Defense and Wireless basestation business.  Texas instruments said these two areas grew sequentially with wireless basestation very good. TI said wireless chipsets were not growing as there is still too much inventory. But, TI doesn't have Apple as a customer. Last year Triquint said that they had to withdraw some of the designs at Apple because triquint couldn't guarantee they could deliver on the higher end of Apple's unit assumptions.  Since then, Triquint expanded available capacity and thus, has mentioned that they are getting design wins- but will not say if it is Apple. But, they did say their largest customer (Foxconn) will remain the largest customer as far as they can tell. Triquint says that utilization is their largest component of margin expansion which suggests that they are serious about ramping it out!!

I'm still liking this one. This is a good price to be buying (if Europe doesn't fall apart).

Jwells

$OCLR OCLARO Takeaway's from Finisar's Conference Call

Having listened to every conference call and every roadshow webcast for the past 3 years, I deduce that what Alain Coulder said months ago about losing share to competition was "what we have been told is that customers will return to the normal runrates around and before the flood". This means that share was temporarily lost due to Oclaro's inability to fill orders and in 3rd quarter they will be at or near preflood revenue levels. Finisar's guidance suggests this to be true. When europe's crisis is solved, and I think we are close, spending will resume from AT&T and Oclaro along with Finisar should resume sequential revenue growth. Oclaro's common stock has the most to gain as it has been much more severely punished.

Jwells

FSI International $FSII Texas Instruments Guidance Bullish for FSI

Texas Instruments affirmed 2Q guidance last night.  This is bullish for FSI International as TXN is one of their larger accounts.

Towerstream $TWER Sign's its second National Carrier

Yesterday, Tstream reported earnings. Within the 10-q, under the Management Comments, was a comment that they have signed a new national carrier contract.  On the call, Jeff was asked who it was.  He declined to say, but he did say that when they sign the 3rd contract, "the flood gates will open". My opinion is that, so far, Verizon and ATT are not among those that have signed.
Jeff said that they are expanding the offering in new markets and that this summer will be very busy signing up new contracts and building out new nodes. Towerstream has a first mover advantage and will likely be best of breed in the new category.

jWells

Towerstream $TWER Future Developments

Some catalysts are on the near horizon for Tstream. Tomorrow, Tuesday May 7th at 11:35 am Jeff Thompson, CEO Towerstream is the keynote speaker discussing small cell technology and the evolution of the tower business at the Summit. This is great exposure for tstream and it also confirms my thesis that tstream's network is the natural evolution of the tower business.  And, its very very early. In fact, no one really "gets it" yet. But Mario Gabelli said he will be there. I'm hoping this speech gets some more big institutions interested in what Jeff is doing at Tstream and causes some short covering. If this happens and the earnings call is good, we could see the stock move up to around $6, maybe a bit higher. Look for more on this a bit later.

jWells








CTIA Wireless Summit Schedule:  http://www.ctiawireless.com/events/eventdetails.cfm/1467

Easylink $ESIC Being Acquired for $7.25

Over the last few weeks, I have written about what a wonderful job Tom Stallings and his management team have done at Easylink. Minutes ago, Opentext $OTEX agreed to acquire Easylink for $7.25 in cash.  Opentext missed earnings expectations but did underpay for Easylink. I feel the company is worth more, but Tom Stallings isn't getting any younger and stockholders have been frustrated with the lack of stock performance even though the company has done a very good job.
Congratulations Tom and thank you for making me 25% return in a very short period.

jWells

Towerstream $TWER Carrier Speculation

I've gotten some feedback recently on who the carrier is that has signed a data offload deal with Tstream.  Could it be China Mobile?
I have written in the recent past about the developing carrier contract tstream has inked.  I have speculated that the deal is with Sprint but through Clearwire's wholesale offering. But, I have some additional thoughts that  instead of Sprint, the carrier maybe China Mobile.
We know from recent announcements that Cleawire and China Mobile have been working on a US offering. Using Clearwire for its wholesale offering makes since as I doubt China Mobile would be allowed to build out a network in the US. But they would be allowed to use Clearwires wholesale offering and because Clearwire and Towerstream's networks are built with the same products, I think this might be a distinct possibility.
If China Mobile does offer cell service and phones in the US, then it makes sense to do it in the most populated areas of the US. Because the offering would likely be a very low cost one, volume would be needed to drive the kind of profits to make a difference for China Mobile to consider it. This is an interesting and logical choice.

jWells

Article back in September of last year.

http://usa.chinadaily.com.cn/us/2011-09/15/content_13699026.htm

Falconstor $FALC Falcon and the Stor man

Falconstor is a Cloud/DataCenter/Storage/Security Play.  Basically, Falconstor was once a darling of tech.  They own technology that is one of a kind. For example, suppose a datacenter operator wants to reduce its cost by changing its service/storage vendors from EMC to Dell. To do this is an enourmous and dangerous task. But, Falconstor's products not only make it easy to change, but you don't have to power everything down, or even stop your service, it can be done on the fly and no one even notices.  And its vastly cheaper than anything I have been able to find available.
So, whats the problem? Well nothing really anymore. The founder of the company was charged with making improper payments to a customer about 2 years ago. The government supposedly has offered a fine for $7.5m to end it. Falconstor hasn't accepted the offer.  My guess is, they are trying to work out some sort of softdollar deal.  They have the money. In fact they have a pretty strong balance sheet with $0 debt.  Once some clarity is realized, this will be a catalyst.
Also, they recently signed a deal with Dell.  They are already working with HP and other, but the Dell deal is HUGE!! Dell is aggressively trying to compete with EMC and having some success.  The deal with Dell will be a revenue gamechanger and is a catalyst for a higher revenue runrate. Also, if Falconstor where acquired, the company would fetch at least $7.00. More on valuations later.

jWells

Here is Jim Mcniel on Justin.tv
very good!

http://www.falconstor.com/company/about-falconstor/ceo-vision?utm_source=homepage&utm_medium=banner&utm_term=ceovision&utm_content=video&utm_campaign=CEO%2BVision

AT&T $T Verizon $VZ limited capex spending

I believe AT&T and Verizon's decisions to limit spending on capex are a result of the uncertainty acquiring spectrum. My thoughts are that these 2 carriers want to dominate spectrum and as a result are trying everything they can to put clearwire out of business. Democrats are aware of these tactics and doing everything they can to limit their power.  Unfortunately, clarity might not be until its clear which party will control the Washington. 

jWells

Oclaro $OCLR Price action and Theory

Oclaro $OCLR recent price action has been extremely painful. Very weak execution sits squarely on Alain Couder's management team. Its not that they aren't capable, they are, its just I think Alain is getting old and soft and would benefit to bring in some younger talent to get things in shape. There isn't much time as losses will continue to erode the balance sheet. They have agreed to merge with Opnext because the Thailand floods have limited innovation and thus placed both companies behind competition thus reducing market share in the future. This was a necessary merger to the existence of the companies. Integration will be challenging, but with all that is at stake, will be done effectively.

Towerstream $TWER Carrier Deal is with....

Towerstream $TWER

I had previously written that I thought Sprint was the carrier that signed a contract with Towerstream. My logic was that Towerstream's network was built largely with Dragonwave product.  Clearwire's network is largely built with the same products. My thoughts were that it would be easy to integrate a backhaul deal with Clearwire and thus Sprint would be the carrier that has contracted with Towerstream.
Today, Clearwire mentions that have "identified" (as opposed to build) 5000 nodes as a backhaul offload network in 31 markets to start in NY, Chicago, San Francisco, LA, and Seattle.
This confirms my thoughts, except perhaps Towerstream will have a deal with Spint through Clearwire as opposed to directly with Sprint. One thing that might be a bit different is Towerstream only mentioned San Francisco and NY on the conference  calls as the two markets where a backhaul offload strategy would be deployed.  So this is a possibly very good news and we will more than likely hear on May 10 the number of nodes used in the offload strategy climb.  In effect, Each additional node adds $142k to market cap based on the buyout of NextG.
More on valuations later..
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Thanks!!
jWells

Oclaro $OCLR

Oclaro $Oclr reports after the bell tomorrow.  I am preparing a longer more in depth post to this one.  It will be ready soon.  But, for now Infinera just reported better than expected earnings today.  This is significant as it was one of Oclaro's top 3 customers accounting for more than 10% of revenue.  Oclaro is up in afterhours trading as it should be because for the last 2 weeks its done nothing but drop.

jWells

EasyLink $ESIC Valuation and Trading around Earnings

EasyLink was one of the first companies to harness the power of the Cloud to deliver a service. I will write more about the company later, but first, a word of caution.  The stock price, before and after earnings for the last 2 reports, climbs into earnings announcements and then sells off hard. There are 4 reasons for the behavior.
1. Revenue dropped last quarter to $44.5m from $47. The reason is, they lost a low margin client to a Japanese carrier. I was sceptical, but their margins did go up.
2. Not many wallstreet firms cover it, much like Magic Software ($MGIC)
3. The business model doesn't have a lot of barriers to hold off competition.
4. Overhang of a patent suit from J2 Global.
 So, what is to like:
1. The CEO Stallings, has made statements which have all come true.  I really really like this.  I have listened to at least half a dozen conference calls. So far this has been true.
2. Not many wallstreet firms cover it.
3. Operation income per share has doubled in 1yr.
4. Using Free Cash Flow to pay off the purchase of Xpedite.  1yr ago total liabilities for the company were at $145m today they are at $117m and likely to fall to 107m by next report.
5. Having some success in the Patent suit as some patents were upheld. The litigation is expected to end very soon.
6. Mostly all the management team is old IBM guys.

More on earnings:
This is a chart of revenue, cogs, gross profit, operating expenses, and operating income per share.
I like to use operating income per share because it eliminates a lot of noise you get quarter to quarter so you can focus just on execution. And you can see operating income has doubled in last 8 quarters.

	rev	cogs	GP	Opex	Op inc	Op     inc/share
10-1	20.5	5.50	15	11.7	3.3	$0.11
10-2	20.5	5.50	15	11.7	3.3	$0.11
10-3	23	6.50	16.5	14	2.5	$0.09
10-4	47	17.50	29.5	23	6.5	$0.22
11-1	47.7	16.40	31.3	23	8.3	$0.28
11-2	46.8	16.40	30.4	24.9	5.5	$0.18
11-3	47	15.70	31.3	24.2	7.1	$0.24
11-4	44.5	14.57	29.9	22.05	7.89	$0.24

                                                                                                     
 On a Operating income per share basis with a 10 pe, you could value the company at $10. If  you wanted to, you could reduce it down by the difference between current asset and total liabilities by another $1.60 and arrive at $8.40 as a price target in a few months or quarters. I think we will see this price in the coming months if, revenue doesn't decline and margins are solid, they continue reducing the note used to buy xpedite, and gets some color on the patent case.


Stock Price:
It recently broke through a resistance of $5.25 which is where it traded the day before the last earnings report. It will likely trade down after they report and you might be able to pick some up. They have recently been added to some tech suppliers in Europe.  Most people think this would be bad with what is going on. My thought process since the financial crisis is that tech is the place to be as companies will reduce costs by adopting technologies to replace workers.  So far, I have been right.


impressive customer list:
http://files.shareholder.com/downloads/ESIC/1383094715x0x359789/36ffa360-51b3-4cfb-8bb9-4f6bc8a88908/EasyLink%20Roth%20Conference%20Presentation.pdf


jWells

FSI International $FSII Hitting on all cylinders

I have previously written about how FSI International may post a 100% sequential EPS growth for Q1 2012. I believe now that they are definitely doing extremely well as they have designed and built a business model that is spot on with where the market is now.  As a result, I think this will be a good price to buy when we look back around July.

Jwells

FSI International $FSII may post a 100% sequential EPS growth in Q1

FSI International $FSII shares have been strong since late fall.  I began following them a bit before the mid October breakout from earnings guidance.  This last report was real good but the guidance was fantastic.  They guided EPS at $.20 for Q1.  Putting a pencil to it, we could get a crude value.  I say crude because this gem is highly cyclical and things can change very quickly, so keep an eye on it. 

If they could do .20 per quarter over the next 4, we could see $.80 for the year.  with a 15 multiple, shares would be $12.  Since the company doesn't have any debt, liquidation value is about $2. So theoretically, we could potentially value them at $14.

If they meet earnings this quarter and guide higher for Q2, this one could really take off with some strength. 

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JWells.

Towerstream $TWER Trading yesterday and What to expect going forward

Towerstream $TWER traded horribly yesterday. But a couple of positives can be taken away from trading yesterday. One: the previous days price gap was filled so the pricing action going forward should be more smooth. Two: likely lost all the angry shareholders from the secondary offering last summer.

After moving up in the high 6's during the premarket session, Tstream opened the regular session in the high 5's and traded down all day long.  Hopefully if you have read my other posts. And, as I said in those posts, now that a contract with a national carrier has been disclosed, a better way to value Tstream is price per "node".

This morning it looks like it wants to move higher. I suspect it will move sideways the rest of the week as it forms the "handle" part of a nearly 1 year Cup.  For those of you that don't know, a cup with handle is among the strongest technical patterns that can be seen.  Mostly, you see these quite easily and more frequent in mid caps. A breakout of a cup with handle pattern is usually a sign that institutional buying is beginning.

If you are holding positions in Tstream, and you can hold it for a while, I think you will be handsomely rewarded.

Take a look at a 10yr chart of American Tower (AMT). By the way, AMT officially gave Tstream its name.
10 years ago AMT was about the same price Tstream is today. Imagine you had purchased 10,000 AMT for $5 for total of $50,000. Fast forward and today your investment is now worth $640,000 and paying you $3,000 per quarter in dividends. I think the same metrics can be applied here. Obviously much can happen between now and then, but Tstream IS the evolution of the old fashioned tower companies.

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JWells

How to Value Tstream $TWER

Crown Castle recently acquired Next G (a private company similar to towerstream).  Next G has 7000 nodes built.  Crown Castle paid $1 billion to acquire Next G. So to find a value for tower we can should determine what the going rate is for a node. From here we can get a rough estimate of what Tower might be worth.  Knowing this helps us determine how to handle our position.  Applying some simple math to Next G $994,000,000/7000nodes give us the price per node of $142,000.

When we apply this to Towerstream, we can determine its current value of 1500 nodes @ $142,000 gives us a market cap of $213,000. Since Tower has 55 millions shares, we can value them at about $3.87 (213/55).

Towers said they will build an additional 3000 nodes at a minimum over the next 12 months. So the market cap based on the price paid by Crown Castle for Next G would be 4500*142,000=$639,000,000. Divide this by 55 million shares and we arrive at $11.61.

Now we know what an acquisition price is for the company, we need to see if the contract they have signed is inline with tower industry metrics.  If they are, then these prices are great points of reference.  Should the contract come with different metrics, then we will have to regroup and do a little more math.

Assuming the contract is within the norm, I think we will see shares in the neighborhood of $7 next week before  taking a bit of a breather, then we should see shares begin to climb towards the low teens sometime in the fall.

This could all change very quickly though.  Jeff Thomson, CEO of Towerstream said that talks with all carriers are fluid.  So any additional contracts with other carriers will certainly be a positive.  But, he said the cable companies are being equally aggressive, yet not quite as far along (I suspect).

We could be sitting on a real rocket ship with this one.

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FSI International $FSII A Sequential 100% EPS Increase Coming for Q1.

FSI International $FSII shares have been strong since late fall.  I began following them a bit before the mid October breakout from earnings guidance.  This last report was real good but the guidance was fantastic.  They guided EPS at $.20 for Q1.  Putting a pencil to it, we could get a crude value.  I say crude because this gem is highly cyclical and things can change very quickly, so keep an eye on it.

If they could do .20 per quarter over the next 4, we could see $.80 for the year.  with a 15 multiple, shares would be $12.  Since the company doesn't have any debt, liquidation value is about $2. So theoretically, we could potentially value them at $14.

If they meet earnings this quarter and guide higher for Q2, this one could really take off with some strength.

JWells.

Towerstream $TWER Officially announced a Contract without details

Towerstream $TWER filed an 8-k late Friday, with the SEC, stating they have a contract with a carrier.  They didn't give any details.  This would explain why the stock was particularly strong Friday.  On Monday, we should get some real details on what the details are, so stay tuned.  Oh, check out how I value Tower to help you with your decisions.  

JWells

How to Value Towerstream $TWER for Monday

Crown Castle recently acquired Next G (a private company similar to towerstream).  Next G has 7000 nodes built.  Crown Castle paid $1 billion to acquire Next G. So to find a value for tower we can should determine what the going rate is for a node. From here we can get a rough estimate of what Tower might be worth.  Knowing this helps us determine how to handle our position.  Applying some simple math to Next G $994,000,000/7000nodes give us the price per node of $142,000.

When we apply this to Towerstream, we can determine its current value of 1500 nodes @ $142,000 gives us a market cap of $213,000. Since Tower has 55 millions shares, we can value them at about $3.87 (213/55).

Towers said they will build an additional 3000 nodes at a minimum over the next 12 months. So the market cap based on the price paid by Crown Castle for Next G would be 4500*142,000=$639,000,000. Divide this by 55 million shares and we arrive at $11.61.

Now we know what an acquisition price is for the company, we need to see if the contract they have signed is inline with tower industry metrics.  If they are, then these prices are great points of reference.  Should the contract come with different metrics, then we will have to regroup and do a little more math.

Assuming the contract is within the norm, I think we will see shares in the neighborhood of $7 next week before  taking a bit of a breather, then we should see shares begin to climb towards the low teens sometime in the fall.

This could all change very quickly though.  Jeff Thomson, CEO of Towerstream said that talks with all carriers are fluid.  So any additional contracts with other carriers will certainly be a positive.  But, he said the cable companies are being equally aggressive, yet not quite as far along (I suspect).

We could be sitting on a real rocket ship with this one.

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Oclaro $OCLR Is this merger a Good Deal for Oclaro Shareholders?

I think So! Buy low and Sell high is the objective.  Sure, they have some challenges, but I think buying right here will be a excellent opportunity.  More on this after my appointment.

I was hopeful that Oclaro was executing the business model back to pre-flood levels in my previous posts and that we would see earnings improve in the coming quarters.  I am a little less confident this will be the case, but only a little less confident.  I listened to the conference call yesterday and could only think that Oclaro has lost market share to Finisar and, as a result, had to "buy" business.
This is in fact what they did.  But, as I have bought Oclaro at (what I think) will be a market bottom, it makes me feel good that management shares in my thinking.  Buy low and sell high is what its about.  Oclaro shareholders paid 177m  for 212m in revenue at peak flood revenue effects.  So, not a bad deal, I think.  But here is the nugget of chocolate-Opnext guided March quarter at $73m (midpoint).  Putting some math to that we can see Oclaro really bought 292 million in revenue for 177m.
I also listened to Opnext's most recent conference call.  They indicated that come June quarter they expect to be at preflood revenue levels.  This puts the merger in its most favorable light.  If this is true, Oclaro purchased 380 million in revenue at a 53% percent discount and thus may see a 100% ROI on this merger.  I think the risk is worth the reward at these levels.
I am not sure shareholders of Opnext will approve this deal because I think they will suffer the most, so I speculate that Opnext has lost market share more than anyone and that I think we shouldn't expect revenues to reach preflood levels by June. I am modelling out more of the 85m area and thus Oclaro likely paid 177m for 340m in revenue.  
In looking at the product overlap, there doesn't appear to be much overlap and management said that a merger will help margins as more internal component parts will be designed into more complex components, where before they were outsourced.  Also, some savings will be realized (longer term) in closing and consolidating fixed assets.
I will be listening very closely during the Oclaro's and Opnext's next conference calls and will keep you posted.  But I think this is a very compelling price to buy Oclaro at this level.


Jwells
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JWells

Towerstream $TWER up today in a bad tape. Here is why?

Boingo Wireless, a carrier and non carrier provider of SAS and roaming services, established a business relationship with Towerstream some time last year.  Boingo CTO, Niels Jonker, in an interview with Fierce Broadband Wireless, say that the carriers, along with cisco and others are employing enough resources to ensure interoperability between wifi hotspots and the mobile networks will be completed by late 2012.  This validates Jeff Thompson's comments on Towerstreams most recent conference call.  I think Jeff was right when he said it would be weeks, or even days, when we announce a carrier offload contract in 5 of your markets.

JWells

Dragonwave $DRWI; NSN Ink deal with Saudi Arabia to build

Dragonwave $DRWI, from the bloodline of Nortel and Sir Terrence Matthews announced today that Nokia Siemens Network was chosen to build out 1/3 of the 3G and 4G network in Saudi Arabia. This is the sweetspot for Dragonwave as fiber would be very expensive and maybe impossible to lay in rural areas around the world. Dragonwave recently became the exclusive supplier to NSN for Microwave transport products in order to provide a complete end to end solution network companies are looking for as they build out a global highspeed broadband cellular network.

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JWells

Towerstream $TWER Which carrier will break Towers Cherry?

Which carrier will sign the first carrier deal with Towerstream in the coming days and weeks is interesting to think through.We know that ATT needs towers assistance more than any other, but I think it will be Sprint($S) that comes to the table first with a contract.
The reason is, Sprint is now heavy into its network expansion of 4G LTE called "Network Vision". Also, Sprint, along with its wholesale partner Clearwire ($CLWR), has been recently buying product from Dragonwave ($DRWI). Clearwire's network is nearly 100% Dragonwaves product and we know that  Towerstream's network is mostly Dragonwave carrier class product as well. My thoughts tell me, logically, a Sprint and Towerstream would be an easy and quick integration with the two networks with little capex spend for tower.

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JWells

Apple, Intel, and Oclaro What do they have in common?

Several years ago, Intel announced back in 2009 that, at the bequest of Apple, would develop a solution to transfer information among consumer products at light speed.  Intel called it Project LightPeak(renamed later,Thunderbolt, by Apple).
The solution to build it was there, but the price was considerably above the price Apple needed the product.
In steps Oclaro. Intel found that Oclaro possesses the scale, expertise, and experience to provide parts of the product within the cost structure demanded by Apple.
Oclaro is about 75% recovered from the Thailand floods. During this flood infected revenue decline, Oclaro is transforming its business model from a capex only model to a model with both capex and consumer revenue.  Project thunderbolt will provide a powerful revenue growth engine for Oclaro.  When we apply significant capex spending from the cable co's and carriers, we could say with great confidence that in the coming year or two, Oclaro will be, at a minimum, a 3 bagger.

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Jwells

Towerstream $TWER & Femtocell's/Picocells

If you are not aware, Towerstream has big news coming.As of yet, I still cannot find an official article stating what is taking place which suggests that the shares of Towerstream are poised to make a serious move higher in weeks or even days.  If you would like to know, read some of my older posts on TWER.

Small cell technology has officially been adopted by the carriers as part of a solution to solve the spectrum crisis (Ericsson buys BelAir Networks, ATT and Verizon announce they will be using WiFi Offload programs (http://www.rethink-wireless.com/2011/05/20/verizon-follows-att-wi-fi-offload-tiers.htm) . We hear about the looming crisis.  It is here right now!  So, I decided to write about the manufacturers that I think will benefit most in a new evolution of Tower Companies as small cell technology begins shipping its first products Q1 2013.

But before I do, I have learned that the small cell technology currently cannot handle voice, does not need backhaul(i presume that means each node b/c eventually everything has to travel down a backhaul) and also interferes with a macro cell towers spectrum. So keeping on top of technology changes will be a priority as investment dollars move from laggards to leaders.

Right now I have identified 3 companies that can supply complete end to end solutions. They are:

Alcatel Lucent $ALU
Ericsson/BelAir Networks $ERIC
Nokia Siemans Networks/Dragonwave $DRWI (Merger Pending)

More to follow

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JWells

 

Towerstream $TWER Potential Value

Today, I am going to explain what I think the value of Towerstream at this very moment and then in 1 year.

Crown Castle recently acquired Next G (a private company similar to towerstream).  Next G has 7000 nodes built.  Crown Castle paid $142,000 per node.  7000*$142000=$994,000,000.

Towerstream currently has 1500 nodes.  1500*142,000=$213,000. Tower has 55 millions shares.  So Tower is worth 213/55= $3.87.

Towers said they will build an additional 3000 nodes at a minimum over the next 12 months. So the market cap based on the price paid by Crown Castle for Next G would be 4500*142,000=$639,000,000. Divide this by 55 million shares and we arrive at $11.61.

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Towerstream $TWER carrier network rental information

Jeff Thompson Ceo of Towerstream said on the call that implementing the carrier contract within its network will only take 1 to 2 months without much money spent on the existing network.  This suggests that revenue will begin flowing to Towerstreams' income statement with a quarter. Two quarter's at the most.  With this we know that the guidance for June will be above the $7.5 million guidance for Q1.  He said Q2 will be at a good pace.

Jeff said that they are leasing the assets of the company in long term contracts. Jeff also said that economics are on a per SSID basis rental, similar to leasing a DAS channel on a DAS network.Towerstream will have approximately 5000 nodes by Q1 2013. More on the value of Towerstream later. 

Ps. The honor system implies that if you read the article, you must click on one of my ads.

JWells

Towerstream $twer Update

The more I think about this the better I feel about it.  Today, I cannot find any upgrades or articles about what was announced on the conference call.  This suggests that prices will move higher. We will likely see at least one upgrade tomorrow.  We will likely see the upgrade with a high price target as well (high single digits).  The carrier announcement is to be in the next few weeks.  So We will see some good price action in the coming sessions.

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Thank You Kindly,

JWells

Towerstream $TWER and the coming price action

Towerstream will begin working its way up to $5 over the next few trading days to form a one year long cup. Then, when the official news is announced about the carrier deal, it will breakout in very very high volume and move into the $7-$9 dollar range.

JWells

Towerstream $TWER

As of 10 am EST. I have yet to see an article on what is really going on at Tower! This suggests that it still have a big move higher that will be driven by analyst upgrades. After that, Tower will officially announce the big news and people will realize that this companies revenues will triple within a year or so.

JWells

Towerstream $TWER Has Finally Delivered a Deal!

Jeff Thompson CEO of Towerstream $TWER said today on the quarterly conference call that within the next few weeks or even days, he will announce a carrier offload deal using Towerstreams' wifi nodes, that are close to the ground, alongside the carriers small cell radio.  The two work well together, as the small cell technology interferes with a macro cell spectrum but not with Towers nodes.  So Towers network solves the problems for carriers in highly congested areas where Tower's realestate assets are located. Essentially, Towerstream will add 3000 new nodes by the first quarter of 2013 in 5 of Tower's markets.
Jeff said that the LTE small cell technology can handle 32 simultaneous users while WiFi can handle hundreds.  LTE small cell cannot yet handle voice. Wifi has handled voice for years. For the 3,000 new nodes, Towerstream has been working with the carriers on where to place them. Jeff said that it will cost Tower between $12-$15 million for the 3000 nodes and said that the cost will go up as they bring the other carrier customers into the fold.

This is a new wave of tower companies from the traditional tower companies. Look at what your returns would be if you bought into American Tower 10 years ago.

This new opportunity will help Tower rapidly grow revenue. In fact, EPS could come in  neighborhood of $0.80 annually by ramping revenue to $100m per year. Factoring up a PE of 15, we could see TWER trade in the $11-$15 area very very soon.  In fact, tomorrow morning, I suspect that we will see 3+ millions shares trade on a stock that normally trades only 250k.  2.3million shares are short, or almost 9 days worth of volume. We will likely see large buy volume at the open. It would be good purchase if you can pick some up at less than $3.25. It will trade up all day with intermittent big volume spikes. Most of the time though,  activity will be brisk and sellers will come in to sell their $.20 cent gain.  But don't worry, try to hold on to it at least until most of the shorts get out. When volume reaches around 4 million (it may take a few days) if you MUST get out, then do it after that point. But wait for the shorts to cover. It would be much better to hold it for 9 months, or when the price gets into the low teens, I can see that Tower is now going to be, at the very least, a utility. But more likely,  a REIT structure and kick off some great dividends in the future.

JWells

Oclaro $OCLR gaining traction as deduced from Ciena $CIEN earnings

Yesterday Ciena reported earnings that were in line with a guide down in Feb. 21.  The reaction to this news pushed the stock of Ciena down 23% through March 6, the day before they reported. March 7, Ciena  Guidance was good as they said Telco spending is improving and now are looking for revenue to fall into a midpoint of about $442.5m.
What we know.
Ciena is at top 3 OEM for Oclaro as reported in Oclaro's quarterly report(see older posts). In a research report by Credit Suisse published this morning that Ciena's strength is coming largely from Ciena position in 100/G at Verizon.


"Verizon appears to be a source of particular strength for Ciena’s
100Gbps system as Verizon is building out 100Gbps WDM routes connecting all major
cities in the United States this year in addition to the dozen or so routes that Verizon built
using Ciena’s 100Gbps platform in Europe last year. We expect Ciena to continue to be
the primary vendor for this build out and note that to date Ciena has been the exclusive
vendor."


Oclaro has many catalysts on the horizon that make $6.50 an easy target for shares. I expect them to  announce the sale of a manufacturing facility any day now that will add $30m cash to the balance sheet worth about a $0.50 cent move higher on this news depending how far it runs up in reaction to the Ciena news. Oclaro's guidance last quarter was, I believe, conservative.  As a result, I expect them to beat the high side of guidance and guide somewhere to 120m for June quarter and this could move shares into the low teens.

Jwells

Towerstream buys Dragonwave backhaul

Towerstream has used Dragonwave in the past.  Towerstream recently purchased more units from Dragonwave for the first time in at least 4 months.  Backhaul spending is gaining interest as Clearwire and others boost network capacity and performance.

Magic Software, MGIC, gaining traction

Magic Software, MGIC, has landed a carrier deal. Kddi, a leading Japanese Telecom company pushing to grow its domestic and global business services, will use Magic Software platform to "push" Salesforce.com's enterprise platform to mobile devices.  As I said before, we will see acceleration of these services because they boost employee productivity with very little investment.
You can read my earlier post on MGIC to see what the balance sheet and revenue profiles look like. As I said before, I think, at a minimum, the value of MGIC should be in the 7's (slow growth economy) to as high as the 20's (high growth economy).  

Towerstream $twer presenting at Deutsche Bank

Towerstream's Jeff Thompson (CEO) is presenting right now. They are still seeing acquisitions as very lucrative right now. The core business is performing very well.  New legislation to free up spectrum will take 10yrs to deploy. Phase I Towerstream can take the network and real estate assets and offer a WiFi offload products to as much as 8 different carriers in a shared resource model. Phase II, will be to buildout small cell technology not utilizing fiber, but rather ethernet.  It will not be until next year that the small cell products will be available for a multi carrier program. In data oasis's like Times Square, the network is outperforming LTE on latency, upload, and download.
Jeff stated that they have signed up new clients on SmartFi and that he predicts it will ramp faster than the core business. Acquisitions are still much better than greenfield.  Greenfield can take upto 3-4 years to ramp up to where they would like.
They are in deep talks with carrier offload program and its accellerating due to the spectrum problem.

Oclaro, $OCLR, CFO Turrin speaks at Morgan Stanley Conference

Oclaro's CFO Jerry Turrin spoke tonight at the Morgan Stanley Tech, Media, and Telco conference tonight.
You can listen here:  http://investor.oclaro.com/events.cfm

Jerry was interviewed by Ehud Gelblum, telco analyst at MS.  Jerry begins by talking about the floods impact on revenue in 2011 which ended up being a sluggish year for telco spending.  Jerry expects revenue to be at about $110m by end of June quarter and, he said, "we are in process of matching out expenses to that level so that would be about breakeven for us."  Last quarter we were at $86m and that was because of the capacity issues caused by the floods.

Next he was asked about demand.  So if demand is the same as when the floods happened, then when revenue levels dropped, you should see some backlog, unless your customers went elsewhere. Jerry says his customer want to restore share. "speaking on Thailand, I don't see anything on products that suggest a profound share change and if you think about our business, they tend(customers) to have multiple sources of supply and tend to have a well managed supply chain, where they've got the right balance, and they want to get back to the right balance they had going into the floods, its in their interest because they have optimized their suppliers.  And we think it gets right back to normal.

Interviewer says "So, in the June quarter, there should be some backlog"?
"logic dictates we should see a little bit of backlog", and in going from $85m to$110m runrate as June quarter, "I believe we get there, and I believe we get there before I predict that we get there."

Oclaro will collect business continuation insurance and interruption insurance to offset some of the capex spend to get up to capacity. Also, Jerry mentions they are due insurance proceeds over the next several quarters to reimburse lost revenue, lost inventory, and damaged equipment.  Oclaro is also negotiating to sell a plant in China and will get a net 30-40 million which will help their balance sheet.

In summary, I think Oclaro has a set of customers that like doing business with Oclaro. I think March quarter earnings will beat, probably not by much, but I think they guide above $110m.  I think this represents a great risk reward profile.

JWells

Breakout On Towerstream $TWER

Towerstream, a micro cap, emerging utility, has broken out today.  The stock has broken resistance going back to October where angry shareholders (about 10 million shares) should be completely out now.  There is small resistance at various price points into the low 5's. But nothing heavy like we just went through.  Jeff Thompson, CEO, is giving a presentation tomorrow at the Deutsche Bank Media and Telco Conference 3pm.  What we will be looking for is how the core business is doing and some color on how well Daily Deals are helping people sign up for Smart-Fi (Not sure this is going to be huge business).  Also, we are looking for the puts and takes of the Multi Family dwelling units biz (lots of potential here) and temporary Wifi business for one time events and construction sites.  But, I don't suspect we will hear anything on this, the holy grail for Towerstream is the mobile offload business that has yet to pass, but I suspect Sprint and the other smaller carriers will sign up soon. News of a deal of this sorts will send shares into the mid to high single digits.

JWells.    

Cisco's Acquisition Implications on Oclaro

Cisco will acquire the private company Lightwire.  Lightwire makes, as far as I can tell, one product-a 10G optical transceiver untested at Telco's ("Lightwire’s patented modulation and optical-coupling building blocks, combined with integration capability of CMOS Photonics, enable advanced modulation schemes. This makes possible telecom-grade performance — at lower costs to ensure success in datacomm networks").
 http://lightwire.com/technology/.

Unproven technology with Telco's makes this a long term investment for Cisco.  I have no doubt in Cisco's ability to "fasttrack" this technology, but the Telco's move at glacial speed.  I doubt we will see, over the next year,  any erosion in 10G market share from Oclaro.

I am confident that over the next 6 months, Oclaro (OCLR) will produce significant price appreciation.

JWells

Ericsson Buys BelAir Networks Validates Wifi Assets

Ericsson (ERIC) announced today that it will acquire BelAir Networks.  This acquisition validates Wi-Fi  as a tool that will be more widely used by carriers as they continue to improve the networks. This is, I believe, a very significant event and should pull small cap tech stocks higher over the coming months.  

(MGIC) Magic Software Proves it can Build an Enterprise Mobile App Solution

(MGIC) Magic Software announced that the new mobile app builder division has successfully built a secure mobile app for employees of a company to be able to access all internal databases from a single, secure  mobile application.  As I wrote a few days ago, I thought that Magic (MGIC) Software's ability to grow as underestimated. I also wrote thta I thought revenue would begin to accelerate as the company begins integrating the assets of BluePheonix's Mobile Apps division.
At the core, Magic (MGIC) takes data from different internal databases (legacy databases, new databases, and databases from acquired businesses) and instead of recreating all the work into one database, its able to take the data from all databases and make it accessible in one place. A pretty cool idea.  This is why they have a very deep stable of clientele.
Just last month, with the closing of its acquisition, all this data can now be made available out in the field, on a mobile device, helping the company's employees much more efficient and productive.

http://www.magicsoftware.com/en/news-and-events/?catID=28&prID=761&year=2012

Anticipating a Greek Solution

It looks like Greece is gonna strike a deal today.  I find it interesting that this small country has such a very significant affect on the U.S. markets.  It must be that the European Union was structured in such a way, that if one country (or some sort of country of significance) breaks the contract or is forced to break the contract, this could, in fact, cause a collapse in the value of the Euro as a currency.  And since every corporation and government within the EU has vast amounts of wealth denominated in Euro's, the affects would be globally devastating.

In 1942, the U.S. was finally forced into WWII.  We had been in a terrible depression for more than 12 years. The war, among other things, would be about which type of government would lead the world going forward.  Would it be Capitalism or Socialism? Beginning of summer 1942, the U.S. defeated Japan in the Battle of the Midway sparking our markets climb. As the weeks and months went by, it continued to anticipate that Capitalism would win in the end.  It wasn't until 1945 that Hitler committed suicide confirming an allied victory. It was then another 3 or so years before governments had been rebuilt.  Yet the markets rally that began in the summer of 1942 continued through the rest of the decade producing very handsome returns even during this most terrible war.  PE ratio's expanded to some of the highest levels ever, anticipating how prosperous we would be in the end.

This is not a comparison of where the world is today, but rather a comparison of how markets can anticipate outcomes far into the future.  Because money is made, capital markets (especially equity markets) are leading indicators of the future. And very good ones most of the time. The returns we saw in January convinces me that Europe has a workable solution to solve the problems. And being out of the market right now is simply too dangerous (for long term returns) to ignore.

Jwells

(MGIC) Magic Software, No One Understands How Good Guy Is!

(MGIC) Magic Software

Magic is a code-less software as a service (SAS) provider.  It's a global company, but until recently, hasn't shown much growth. 

What Happened?

Third Quarter 2009, Guy Bernstein became CEO. He quickly promoted Eyal Pfeifel as CTO, partnered with Salesforce.com and within 2 quarters, he raised revenue 30% and has doubled since.


You can see below the growth from q2 of 08 to q4 of 09 that revenue didn't grow at all with an average sequential decline of 1.8%. Since Guy made these changes the growth rate has been 8.52% and if we take out the big jump of 26% the average sequential growth declines to 6%.   

       Rev        Rev Grw%

8-2  16.00

8-3  16.00 0.00%

8-4  15.00 -6.67%

9-1  13.50 -11.11%

9-2  13.50 0.00%

9-3  13.50 0.00%

9-4  14.50 6.90% -1.81%

10-1  19.70 26.40%

10-2  21.00 6.19%

10-3  22.00 4.55%

10-4  25.00 12.00%

11-1  25.00 0.00%

11-2  27.00 7.41%

11-3  30.00 10.00%

11-4  30.50 1.64%

Avg sequential revenue growth 8.52%

The most recent quarterly report didn't show much revenue growth and when you look over several quarters, revenue growth is slowing.  But, this softness in revenue may be coming to an end. 


Magic purchased an app making subsidiary from BluePheonix on Dec 27th 2011.  BluePheonix seems to be have serious financial difficulty as lenders appear to be filing a lawsuit.  http://www.sec.gov/Archives/edgar/data/1029581/000117891312000204/zk1210932.htm 


From what my sources are telling me, the app building division of BluePheonix has some very good talent although AppBuilder MDA (model driven architecture) concept is considered today as legacy. It will be interesting to see what Guy's strategy is here.  

Here are the comments from the earnings press release about it:

 "moving forward, we plan to expand our product offering, epecially our mobile and cloud-based solutions, to provide new and exciting opportunities of our company and greater added value for our customers."

I think revenue growth will resume starting in q1 2012 and accelerate from there.  The reason is they have a huge global client base. check out the link to see a list. Big Big Companies that they can sell to! http://www.magicsoftware.com/en/company/?catID=94

So, I think they take care of the revenue situation.  Let's look at EPS.

        eps  growth%

8-2 0.05

8-3 0.05 0.00%

8-4 0.03 -66.67%

9-1 0.03 0.00%

9-2 0.03 0.00%

9-3 0.03 0.00% -13.33%

9-4 0.11 72.73%

10-1 0.17 35.29%

10-2 0.06 “ 33.33%

10-3 0.08 25.00%

10-4 0.09 11.11%

11-1 0.08 -12.50%

11-2 0.10 20.00%

11-3 0.11 9.09%

11-4 0.13 15.38%

Sequential avg eps growth 23.27%

Since Guy took over, Quarterly EPS growth is an average 23%.  I think this growth continues as a result of strong management, new products, and a deep customer list to sell to.

Looking at valuations.

With a PE of 10 Magic would post a price in the mid $7’s.  If the street place a multiple of 2 times its average sequential eps growth (46) Magic could see its stock in the $20’s.

What about the Balance Sheet?

Current Assets             $68m

Less Total Liabilities   -$25m

shares                            37m

we can see that $1.28 per shares would be left in a close the biz situation.

From a risk reward situation at current price of $6.50, I think this is a pretty good investment.

(Anad) Anadigics-Vanguard, Blackrock, and Wellington made purchases

See the sec filings recently

http://www.sec.gov/Archives/edgar/data/940332/000093247112001890/0000932471-12-001890-index.htm

http://www.sec.gov/Archives/edgar/data/940332/000108636412001928/0001086364-12-001928-index.htm

http://www.sec.gov/Archives/edgar/data/940332/000090221912000048/0000902219-12-000048-index.htm

(ANAD) Anadigics Raises Serviceable Market by 116%

The news out today raises Anadigics serviceable market by 116%, from $800m to $1.8b for 2012 and upto $2.3b in 2013. Anadigics doubled market share at Samsung 2011.  The announcement today sets them up to compete for more biz there. 
With $144m current assets + investments less Total liabilities of $24.41m and shares of 68m we can see that $1.76 in the net per share is supported. With the stock just over $3, operating at just over 50% capacity, new products announced today doubling serviceable market, and wallstreet thinking this company is only a RIMM supplier (they are a supplier, but small amount).  In the past 4 years the company has spend 120m in capital equipment and "the ceo" says its for more advanced in capacity of any of its competitors, yet they are 1/5th the size of the competition (TQNT).


http://www.anadigics.com/news/press_releases/anadigics_launches_multimode_multiband_power_amplifiers_mmpa

listen to the last conference call to find all of this out.
http://www.anadigics.com/investors

Fidelity and Blackrock Buying Into Oclaro

Check out the latest Sec Filings:

Fidelity buys into Oclaro at 471k shares .933% sh outstanding
Blackrock buys into Oclaro at 2,783,032 5.5% sh outstanding

Feb 12th http://investor.oclaro.com/secfiling.cfm?filingID=315066-12-2913
Feb.13th  http://investor.oclaro.com/secfiling.cfm?filingID=1086364-12-1864

Some Deep pockets supporting this one. 
I don't know about you, but that makes me feel better.

JWells

A Look at Oclaros' Balance Sheet

Here is a link to the most recent 10-Q for Oclaro

http://investor.oclaro.com/secfiling.cfm?filingID=950123-12-2170

Take a look at Oclaros' Balance Sheet

Current Assets:                   209,189m
Subtract all Liabilities       -120,861m
Close the Biz Net               =89m
Sell long term assets         +63m
Net                                    $152m                               
Shares                                   51m
Net/share                          $2.98

If Oclaro closed its business 1/1/12, payed everyone, collected receivables, sold inventories at fair value, sold property plant and equipment at fair value.The stockholders would get roughly(no more than) $2.98 per share.  This is just a rough guestimate.  I haven't plowed through 10Q completely yet.
Having said that, look at it this way, your really buying into Oclaros' business at between $2 and $3 dollars per share.

JWells

(OCLR) Oclaro! What Now!

OCLARO (OCLR)

Oclaro’s Stock price fell from the upper teens in March 2011, less than one year ago, to the low single digits.  Let’s look at what Oclaro does, and try to find out what happened in 2011, to give us some insight and see if the company is in trouble or can it be turned around?

What do they do and why did Oclaro outperform in 2010?

The value of Oclaro rose during 2010 due to improved demand for their products. The products they design are used to improve reliability and cost efficiencies of fiber optic networks, probably a good demand environment going forward considering the pace at which mobile broadband and cloud computing are being used . The demand environment is expected to be robust and likely to accelerate for the near future, as network owners try and satisfy this demand.  Note here, the 42% increase in revenue from the third quarter of 2009 to the third quarter of 2010. 

Q3 2009	Q4 2009	Q1 2010	Q2 2010	Q3 2010	Q4 2010
$85	$93M	$101m	$101m	$121m	$120m

 Oclaro has a unique business model in that they have very low variable costs.  The reason, I suspect, is the employees, mostly engineers, earn salaries.  In addition, material costs variability seem to be stable.  Once Oclaro is able to overcome its fixed costs with revenue, profit margins and EPS can show very significant sequential growth percentage increases. Be cautious because, when revenues do not overcome costs, profit margins can show very significant percentage declines, and thus earnings can be significantly negative when revenues are only slightly below its breakeven levels. The result of this type of model is one of the most volatile stocks that can be found.    

What Happened to Oclaro in 2011?

2011 was an especially challenging year for all companies operating in the optical space, especially Oclaro. Investors were beginning to anticipate Oclaro, finally, being able to produce sustainable revenues above breakeven levels and the price rose to a high of around $19 on Feb. 25, 2011.

There were 4 events, outside of the company’s control, that caused some difficult headwinds in the entire optical space in general.  I included the dates of the events so you can see the affects these had on the stock price.

1.        Japanese Tsunami:  March 11, 2011

2.        AT&T Attempt to purchase T-Mobile USA: March 20, 2011

3.        European Financial Crisis-Spring, Summer, and Fall 2011

4.        Thailand Floods- October 11, 2011

The Japanese Tsunami put a strain on some parts supply chains and network spending, in Japan, slowed as the country focused efforts on recovery efforts. The tsunami was a headwind, is now a tail wind, as Japan focuses its efforts on reducing the power it takes to run its networks.  AT&T focus for 2011 was to purchase the assets of T-Mobile caused network spending to focus in other areas than optical. This will may be turning in to a tail wind as seen in some recent headlines.   The European financial crisis caused investors to flee “risky” stocks in 2011, as well as some business softness in some economic indicators coming out recently. Finally, there was the Thailand Floods.  A Fabrinet facility in Thailand flooded and another nearly flooded and remained closed for weeks. This caused the very significant revenue decline from q3 to q4 and some soft guidance in Q1.  I believe we will find this to be a conservative outlook by Oclaro.

Q1 2011	Q2 2011	Q3 2011	Q4 2011	Q1 2012 Guidance
115m	109m	105m	86m	$90-$97m

 What does Oclaro’s business look like now? 

What we know now, from the most recent 10Q is that Oclaro will be close to, if not full, manufacturing capacity in the June 2012 quarter.  We also learned that the top 3 clients in the fourth quarter were: Fujitsu, Ciena, and Infinera.  Looking into these companies is beneficial in understanding how Oclaro is doing with market share. 

The headlines suggest Oclaro is not merely hanging onto market share, but likely expanding it. Also, As businesses begin spending to improve their networks.  The stock price cleared “the Thailand Flood” price decline of $4.30 on decent volume but the market appears to be confused about network spending.  But as you can see below, the headlines suggest that is and will be doing very well.  Oclaro appears to be well in position to benefit and likely to earn sustainable revenue to cover fixed costs and ultimately sustainable profitability and make this a fantastic opportunity at $4.80.

Recent Headlines that suggest Oclaro’s top 3 suppliers exhibit strong business demand:

Fujitsu

1/30/2012 Fujitsu -Recently selected by AT&T to supply component parts within the optical transport network.

Infinera

1/11/2012 Infinera- Infonetics Research named Infinera as the number-one supplier of digital optical network solutions.

Ciena

2/6/2012 Ciena- Ireland selected Ciena to upgrade Ireland’s network infrastructure.

2/14/2012 Ciena- MKM Partners upgraded Ciena.  Here is what they said: “Our work suggests that 40G/100G transport and/or optical transport network (OTN) switching solutions from Ciena are gaining traction at historically large Tier 1 accounts like AT&T (T), Sprint Nextel (S), Comcast (CMCSA), BT Group (BT) and Telmex, and are also gaining share at accounts where Ciena has typically been smaller, such as Verizon Wireless [a joint venture of Verizon Communications (VZ) and Vodafone Group (VOD)]. Further, we believe that first-quarter 2012 capex budgets were recently released at AT&T and Verizon and order rates at these accounts should accelerate in the current quarter.

2/15/12-AT&T  Notter@ Jeffries says anecdotal evidence is that AT&T in the fourth quarter had cut business with vendors by as much as 50%-90%. But Notter reports that he is hearing that once the company’s budget is finalized, business trends will go back to Q3 run rate levels or better. “In total, the AT&T capex picture will look significantly better going forward,” he writes. Notter thinks the expected pick-up in spending from Ma Bell is not in Q1 guidance from the telco equipment vendors. “Our sense is that current investor expectations are quite low with respect to the possibility of a significant ramp in North American cap ex,” he writes. Notter points out that that Q4 results and Q1 guidance were “very disappointing” from companies like Ericsson, Juniper and Tellabs which have major exposure to both AT&T and Verizon. “We recognize that the Q1 guidance from many of these vendors doesn’t jive with our views,” he writes. “We think it’s a natural by-product of their despite to be conservative – particularly in the wake of recent disappointments. In total, we think there’s currently a significant gap between perception and reality on capex spending.” Notter adds that Juniper remains his favorite play in the group. He notes that other companies with significant AT&T exposure include Adtran, Alcatel-Lucent and Ciena.

Oclaro Longer Term?

On the most recent quarterly conference call, Alain Couder, CEO of Oclaro, said the company is reducing its quarterly fixed operating cost down to $110m over the next 2 quarters by performing a sale leaseback with a contract manufacturer in Shenzhen China. Oclaro says the will reduce headcount but keep R&D and other services permanently on site to monitor quality programs.  The cost reduction program, along with capacity repairs, and new products, Oclaro should be very close to sustainable profits after calendar Q2.

Jwells