STOCK IDEAS
AT&T and Sprint grabbed headlines when they announced plans for faster last-mile bandwidth, but the real work is still happening on long-haul fiber-optic networks, which increasingly can't handle the load.
Wave-division multiplexing has emerged as an important technology for boosting the effective bandwidth of optical networks. It's especially handy for telcos that, like Sprint and the Baby Bells, have older infrastructure, a bumper crop of data traffic, and fat capital-improvement budgets. New technologies like optical add-drop multiplexing and optical cross-connects will emerge as all-optical networks become a reality, but placing a wager on WDM has a big advantage: The technology is here today. NationsBanc Montgomery Securities principal William A. Magill expects the WDM business to grow from US$2.6 billion in systems and equipment sales this year to $6.6 billion in 2001.
For the two biggest WDM-focused companies - component-maker Uniphase (UNPH) and system-builder Tellabs (TLAB), which bought WDM pioneer Ciena - business is booming. Unfortunately, both stocks are trading at 40 times expected 1999 earnings or higher. But according to Magill, TLAB and UNPH "could significantly exceed estimates for 1999 and beyond." Still, Magill is quick to point out that bad news, if it does come, hits expensive stocks hardest.
Uniphase: on the Web at www.uniphase.com/. Tellabs: on the Web at www.tellabs.com/.
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