A Bet on Fiber's Future by Jack Willoughby
Summary: This week should see the IPO of optical module vendor Opnext (NASDAQ:OPXT), a "rare pure-play on Japanese leadership in laser technology" and a beneficiary of rising bandwidth demand due to video and other multimedia Internet applications. Opnext was the 10 Gbps and 40 Gbps optical transceiver unit of Hitachi, which spun out Opnext in 2001 and transferred 670 patents to it. Unlike many competitors, Opnext produces its own lasers. Customers include Alcatel Lucent (ALU) and Cisco (NASDAQ:CSCO). Competitors include Avago, Avanex (AVNX), Bookham (BKHM), Finisar (NASDAQ:FNSR), Fujitsu, Intel (NASDAQ:INTC), JDS Uniphase (JDSU), Mitsubishi, Optium (OPTM), and Sumitomo (according to the S-1; the Barron's article only mentions Optium). The market for 10 Gbps data modules will grow by a compound rate of 44% through 2009, according to market-research firm LightCounting. If issued at the expected IPO price of $14, Opnext will trade at an enterprise value of 2.5x estimated 2007 revenue of $280 MM and a P/E of 18x 2008 estimated earnings, according to Renaissance Capital. That's attractive versus the closest comparable, Optium, which trades at an enterprise value of 3.5x estimated 2007 revenue and 24x estimated 2008 earnings. Optium IPO'd October 26th 2006 at $17.50 and now trades at about $23. Hitachi and VC firm Clarity Partners are selling 40% of the 16.9 MM shares to be offered in the IPO. Goldman Sachs is the underwriter.
Related Links: Opnext's website • Opnext's S-1 SEC Filing • Key excerpts from competitor Optium's S-1 • CEOs Discuss the Networking Market