Mr. Bert

Occam Networks: Set to Reap the Rewards of Broadband Stimulus

Zhone has a reputation for poor products, although they did recently refresh their product line. One source questioned whether this was too little, too late.

As for Enablence/Pannaway, they appear to be on death's door.

Occam Networks: Set to Reap the Rewards of Broadband Stimulus

Toad,

My sense is that the FCC is trying to be very forward looking in its approach to broadband. For example, they have asked for comment on the notion of transitioning to an all-IP network. Of course, that won't happen easily or quickly, but it astonishes me that the FCC would even be seeking comment on it.

www.voip-weblog.com/50...

Occam Networks: Set to Reap the Rewards of Broadband Stimulus

Niles,

Thanks for the info on Canada as well. I haven't done a lot of work on that angle, but I know that Occam has a nice little franchise in Canada, particularly in and around Ontario. Additionally, the company appears to be targeting Europe now as well. Their new products announcements appear to anticipate compliance with the ETSI standard in Europe.

While this may not impact Occam directly, it is clear to me that the notion of broadband as a must have, government enabled utility is one whose time has come. Australia has a $43 billion broadband initiative. I don't know much about it, but it strikes me that there is a lot of rural topography down there.

OCCAM NETWORKS: STILL A FIVE-BAGGER FROM HERE

No one ever said they were going to triple sales. It was speculated as a logical outcome of the potential stimulus numbers. If there is even any doubling of sales, it will take place over the course of at least eighteen months.

With respect to your other questions.

1.) Ramping up manufacturing is no problem. Have you not heard of contract manufacturing? It is the easiest part of the equation.

2.) Not all equipment is installed by OCNW. As noted, if sales increase, they will do so over time. Management and execution will be important. Have you not heard of hiring sales engineers? After all, this is a jobs oriented stimulus plan as well and that is one of the goals.

3.) Has it occurred to you that these systems have already been designed? Where did you go to school?

"OCNW does nothing special except cater to Tier 3s ignored by the bigger companies, they can be crushed at will if they enter other markets"

LOL. I never said they did anything special. Most companies out there do not do anything special, depending on how you define it. Who's saying that they are planning to enter markets outside of their competency?

"most likely, OCNW will increase significantly, but there will be no OCNW lottery within the next few years."

What the hell does this mean? The point of the article is that OCNW will increase significantly with relatively little risk at current prices. Who's talking about the lottery?

If the article is out of the "optical tree" feel free to cite particular issues.

Why Occam Networks' Earnings Will Continue to Surpass Expectations

As far as the cutover goes, it was twice delayed, but finally happenjed. Yes, there were some email problems, but I have heard of nothing else.

Why Occam Networks' Earnings Will Continue to Surpass Expectations

ELKay,

All you need to do is read Friday's paper to know that nothing is impossible these days.

I don't follow FRP closely, but I have examined their financials and believe they are OK. They are highly leveraged, but they have a plan to work down that leverage. Remember, as well, that they own a lot of PP&E, so even if they are not making money, there is a big depreciation component that creates cash flow.

According to Goldman, they expect free cash flow of $90mm in 2009 and $114mm in 2010. The company is currently paying $90mm in dividends per year and yielding 50%. It is just a matter of time before this dividend is cut big time, which is the right thing to do. This will give the company an added $90mm per year in free cash flow. Over the next two years, then, they can have free cash flow of almost $400mm. That is pretty good relative to their debt level of $2.4 billion.

So, unless there is substantial further deterioration from here, I think they are OK.

Why Occam Networks' Earnings Will Continue to Surpass Expectations

fflyer,

Yes, basically I would agree with you. I think the stimulus will start trickling possibly as early as late Q2, although it's possible that is a little optimistic. I am told that carriers are being advised that if they want to apply for money, they should be ready by May 1. Lots of stuff still needs to be done, but it is clear that the administration is pushing everyone involved to move fast.

As the company correctly points out, all of this was enacted into law just ten days ago. Their customers have yet to get a handle on any of this. Occam is one step removed in the food chain.

I am not aware of any general revenues for service/warranty but there probably is some.

Occam Networks: The Future Looks Great

Of course, I expect Occam to get lots of new customers as well.

With respect to ZHNE, I don't know it as well, but my sense is they have some issues and are not doing so well. I think their MALC platform doesn't compare to the BLC6000 and is more of a legacy platform.

If you pull up the ZHNE 10K, and do a search for "RUS" or other such derivatives, you will find no mention of the RUS. Their products are RUS certified, but my sense is that it is not a meaningful portion of their business. If you look at their balance sheet as well, if they were doing a meaningful RUS business, their should be some sort of deferred revenue account.

Bottom line, they should be a beneficiary on some level, but they are not your play.

Occam Networks: The Future Looks Great

With respect to the need for customer wins, the answer is not necessarily.

Upgrading customer lines is usually a long term process that takes many many years. Even if a small customer upgrades all its lines at one time, you will see a big revenue pop. For example, if you look at the company's latest presentation from the Jefferies conference, you will see the company highlights New Hope Telephone Coop which replaced "all" of its copper POTS and DSL lines to fiber. New Hope has only 6,000 lines so I asked management why they would highlight such a small customer. The response was enlightening in that this customer accounted for a very big amount of revenue. I believe it was in the range of several million dollars.

for further evidence, if you look back at the 10Ks, you will see that in 2004, Palmetto was their largest customer, accounting for $3mm in revenue, even though they had only 14,000 lines. Why? Because they did all 14,000 lines at once.

So even a small carrier can have a big impact on revenues depending on what they do.

Here is a good report for you:

www.nationalaglawcente...

Thanks to Andrew Schmitt for pointing out that it costs about $2,000 to connect one subscriber. That's a pretty hefty price tag.