Really nice post over on SI curtesy of Jack Hartmann...thanks alot Jack!
http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=19276660

The Road Map to the Fiber-Optic Buildout
By Cody Willard
Special to RealMoney.com

09/05/2003 01:59 PM EDT
URL: http://www.thestreet.com/p/comment/theteleconomist/10111979.html

Fiber Optics BULLISH
The ramp-up of FTTP in 2004 and beyond could be bigger than many are predicting.
Regional Bells are deciding on protocols and are eager to start the buildout.
Optical-component suppliers look exciting.

Editor's note: This column was originally published July 23 as part of Cody Willard's Telecom Connection, a premium subscription service. We hope you enjoy this sample of The Telecom Connection. Please click here, to get more of Cody's insights on optical stocks and all of telecom.

The rumblings around the pending fiber-to-the-premises buildout continue behind the scenes, and I can hardly contain my bullishness about it. Earnings season had me fielding lots of questions about what to expect from the optical stocks this quarter. But it's important to remember that the opportunity I see here has to do with the FTTP buildout of 2004 and beyond. Although I think the ramp-up of FTTP will come sooner and be bigger than most every other analyst on the Street thinks, that means nothing for this quarter.

Revenue has already stabilized at these very low levels. Sales of Pentium processors might increase or decrease in the coming months, but sales in the optical world can't collapse much further than they already have. Stable revenue and the low enterprise values of these stocks only serve to heighten my bullish thesis. That's not to say that these stocks are bulletproof. There will be times when it's nerve-racking to own these stocks, but I'm willing to ride these longs, because the upside potential far outweighs the downside risk over the next few quarters.
Take a Right Turn in Albuquerque

Here's the route I see this buildout taking. Over the next three to four months, the regional Bell operating companies will parse through the requests for proposals (RFPs) from the equipment vendors and will begin deciding on exactly what protocols they will deploy, most likely some sort of 622 Mbps ATM PON schematic. In English, along with my thoughts on the technology, that's 622 megabits per second, which is good for a start (the average DSL speed is about 1/1,000 of that rate); asynchronous transfer mode, which is a shame, because it's not the most efficient protocol in the world; and passive optical network, which is good for operating costs going forward.

What makes me think the RBOCs are so anxious to get this buildout under way? Verizon (VZ:NYSE) is getting very anxious to get this FTTP project going, and the company expects to begin building FTTP systems in the first half of 2004.

SBC (SBC:NYSE) and EchoStar (DISH:Nasdaq) announced an agreement on July 21 to bundle satellite television services with local, long-distance and DSL services. Not surprisingly, the standard response from Wall Street was that this agreement showed that the RBOCs aren't serious about rolling out FTTP. The logic is that SBC wouldn't bother teaming with a satellite company if it was preparing to offer video services on its own. I disagree. I think SBC is getting a jump on the video service provider learning curve, and preparing its customer base for video coming over its own fiber networks. Partnering with EchoStar actually proves how serious SBC is about video, and shows that it wants to enter the foray now.
How Far? How Fast?

The market for FTTP is several orders of magnitude larger than any fiber buildout we've ever seen in this country. As a reference point, Japan, which is smaller geographically than California, is currently the largest fiber consumer in the world after rolling out limited FTTP for several years.

The size of the U.S. market and the makeup of its housing, primarily single-family dwellings rather than large apartment buildings, means the FTTP buildout will dwarf any previous demand for fiber service, including the ridiculous overbuilding of the core of the network during the late 1990s. The companies that supply the buildout will see revenue and earnings surge like never before. FTTP isn't just some flash-in-the-pan, unsustainable move, fueled by speculative capital chasing pie-in-the-sky returns. FTTP is the real deal, and it's being fueled by the conservative, rich, profitable and free-cash-flow positive Baby Bells, who will roll it out over several years.

Look at it this way: If Avanex (AVNX:Nasdaq) expands its revenue as I expect it will next year, we'll see 25% sequential growth per quarter for several years. Coming off a $25 million dollar per quarter revenue base, and estimating 15% net margins (which while aggressive, isn't ridiculous for a component business in a growth phase), Avanex would earn 14 cents per share in the eighth quarter of that growth phase. That would mean annualized earnings of 56 cents a share in the middle of 2005.

But there's more. Those earnings would jump to 35 cents a share in the 12th quarter, or $1.40 per share annualized, in the middle of 2006. Ex-ing out the $2 per share in cash on the balance sheet, that means buying shares now gets investors a strong company with a unique product line that is about to explode in growth for 2.5 times 2005 earnings and one times 2006 earnings.

Looking at FTTP from this perspective, you can see why I'm so excited about the prospects for the optical-component suppliers. Avanex and JDS Uniphase (JDSU:Nasdaq) continue to look like the most attractive component suppliers, with the right product lines and competitive positioning. Finisar (FNSR:Nasdaq) has a compelling optical-component line that could hit the sweet spot of the FTTP rollout, but it doesn't have the backing of Alcatel (ALA:NYSE ADR) and Corning (GLW:NYSE) as Avanex does; nor does the company have JDS Uniphase's dominant market share.

Corning is another company I'm continually asked about. Its balance sheet carries more risk than I want. Corning is going to be a huge beneficiary of this rollout, and maybe that will more than offset the balance sheet issues, but I just don't like the risk/reward because of how badly the company has been managed during the past five years.

If the rollout begins in the first half of 2004, the equipment vendors will begin to have some visibility into the order flow, and we'll begin to see a pickup in orders of components and building of optical access boxes even sooner than that. So while none of this activity will have much impact on this quarter's numbers or next, there could be some acceleration of business for optical component stocks by the end of this year. > http://www.thestreet.com/p/pf/comment/theteleconomist/10111979.html

Got to love the move up today. :)

Looking up. Nortel signs $1 bln pact with Verizon.

http://cbs.marketwatch.com/news/newsfinder/pulseone.asp?guid={2A5C6355-5F1A-487A-B5D0-502B8E9EFA34}&...

Here's and interesting article. Its very obvious where entertainment is going. Just gonna take time. Could JDS benefit?
http://cbs.marketwatch.com/news/story.asp?guid=%7B5501E279%2DCDBA%2D4779%2DAA2A%2DC5709617B481%7D&am...

Report: DVDs, CDs may go obsolete
By Jon Friedman, CBS.MarketWatch.com
Last Update: 11:40 AM ET Sept. 2, 2003

NEW YORK (CBS.MW) -- DVDs and compact discs could soon be obsolete, according to a report issued Tuesday by Forrester Research. "CDs and DVDs will go the way of the L.P.," Forrester predicts.

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File sharing is responsible for almost $700 million of the $2 billion reduction in CD sales since 1999, Forrester says, noting that movie companies face a similar sales threat.

The so-called "hard" media are in jeopardy, concludes principal analyst Josh Bernoff of the Boston-based research organization. "By 2008, revenues from CDs will be off 19 percent, while DVDs and tapes will drop 8 percent," Bernoff said.

By the end of next year, 20 million U.S. consumers will be spending $14 billion annually on broadband connections, the report says. Streaming and paid downloads will drive people "to connect to entertainment, not own it," the report says.

Gloomy trend

Forrester points out that the gloomy sales trend for CDs is already under way, as CD sales in the U.S. fell 15 percent during the past three years. Discussing what it ominously calls "the slow death of the disc," the research group says broadband, widespread storage and digital rights protection will make on-demand music and movie services more popular.

While consumers always pursue bargains and higher quality, convenience remains the key attraction.

"The idea that you have to get in your car, go to a store and buy (an item) is really out of touch," Bernoff added in an interview. "The on-demand and cable access services have all the advantages. All of the content is coming to cable."

Jarring findings

Bernoff's findings could eventually jar the entertainment industry.

Compact discs arrived in the late 1980s and were promoted by labels as a superior way for consumers to own music. The companies claimed that the quality was far better -- even though rock and roll star Neil Young, among others, eventually claimed bitterly that vinyl offered a clearer and more genuine all-round sound. Even though the labels charged more than twice as much for CDs as for vinyl products, the public snapped up CDs and vinyl labels were quickly consigned to be little more than collectors' items.

Meanwhile, sales of DVDs have been billed as the eventual lifeblood of the movie business. Analysts have seen DVDs as the logical progression as a revenue source, coming after cable television distribution and such retail stores as Blockbuster.

The report's findings will affect the media and entertainment industry's largest companies, including AOL Time Warner (AOL: news, chart, profile), Walt Disney (DIS: news, chart, profile), Viacom (VIA: news, chart, profile) and Sony (SNE: news, chart, profile).

"Movie companies are reacting aggressively and moving from talk to action," Bernoff said. "They're making it as easy as possible for you to download a movie and pay for it."

Over time, Bernoff projected, his findings will be more vivid. "There are 10 million people who now have video on demand and that number will be 20 million by the end of next year," he said.

"The big winners are going to be Internet portals and cable companies who can deliver [video] on demand," he said. "The disaster is (potentially) for retail companies," such as Blockbuster, Virgin megastores and Tower, which would suffer. "While labels will survive, I'm very doubtful for the prospects of big music retailers."

The solution is for the retailers to get the most out of the marketing appeal of their well-established brand names. "Western Union is all about maximizing its brand name, not delivering telegrams, any more," he said.

"How did we get to these crossroads?" Bernoff asked in the report. "Broadband connections, cheap and widespread storage, and ubiquitous processing power have forever liberated media from physical objects like CDs, tapes and DVDs. But the same technology forces that brought entertainment companies to the crisis point contain the promise of media's salvation -- the ability to create media services that consumers will pay for."
Jon Friedman is media editor for CBS.MarketWatch.com in New York.

Straus is gone. We'll see what that means.
http://cbs.marketwatch.com/tools/quotes/newsarticle.asp?siteid=mktw&sid=150709&guid=%7BECCF5...