Toad680's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/128374/comments http://seekingalpha.com/article/178769-occam-networks-set-to-reap-the-rewards-of-broadband-stimulus?source=feed#comment-811884 811884
Any thoughts as to what a normalized base of business for Occam would be before the additional stimulus revenue is considered?]]> Fri, 18 Dec 2009 08:25:19 -0500
Any thoughts as to what a normalized base of business for Occam would be before the additional stimulus revenue is considered?]]> http://seekingalpha.com/article/178769-occam-networks-set-to-reap-the-rewards-of-broadband-stimulus?source=feed#comment-811819 811819
I have heard seval times over the last little while that there is real consideration about focussing the FCC's Universal Service Fund ($7 billion a year) on stimulating broadband. For instance it is mentioned in this Washington Post article.

"One proposal floated by the agency's broadband task force calls for using money from the Universal Service Fund, which subsidizes rural phone service, to pay for adding high-speed Internet capacity in remote and low-income regions of the country. The program raises about $7 billion annually from fees on long-distance phone service, and the idea of redirecting those funds has upset rural phone carriers, which have come to rely on the subsidies."

telephonyonline.com/ex...

Some form or recommendation will be coming in February of next year.

As big as the ARRA stimulus is for Occam, it may well be just the beginning. There certainly seems to be a clear direction from the Obama administration.

I am actually quite surprised that given the valuation of Occam shares and the growing prospects for its target market that someone hasn't made a bid for Occam.]]> Fri, 18 Dec 2009 07:11:44 -0500
I have heard seval times over the last little while that there is real consideration about focussing the FCC's Universal Service Fund ($7 billion a year) on stimulating broadband. For instance it is mentioned in this Washington Post article.

"One proposal floated by the agency's broadband task force calls for using money from the Universal Service Fund, which subsidizes rural phone service, to pay for adding high-speed Internet capacity in remote and low-income regions of the country. The program raises about $7 billion annually from fees on long-distance phone service, and the idea of redirecting those funds has upset rural phone carriers, which have come to rely on the subsidies."

telephonyonline.com/ex...

Some form or recommendation will be coming in February of next year.

As big as the ARRA stimulus is for Occam, it may well be just the beginning. There certainly seems to be a clear direction from the Obama administration.

I am actually quite surprised that given the valuation of Occam shares and the growing prospects for its target market that someone hasn't made a bid for Occam.]]> http://seekingalpha.com/article/178769-occam-networks-set-to-reap-the-rewards-of-broadband-stimulus?source=feed#comment-811691 811691
But even the lowest end of the range, on the most meager assumptions, is an absolute tidal wave of spending for a company the size of Occam. I think you will be proven right on the stock over the next 18 months.

And Niles, thank you for the information about the Canadian stimulus.]]> Fri, 18 Dec 2009 03:19:06 -0500
But even the lowest end of the range, on the most meager assumptions, is an absolute tidal wave of spending for a company the size of Occam. I think you will be proven right on the stock over the next 18 months.

And Niles, thank you for the information about the Canadian stimulus.]]> http://seekingalpha.com/article/160200-how-will-the-nbbi-stimulus-affect-small-and-medium-cap-communication-stocks?source=feed#comment-665739 665739
I agree wholeheartedly with you comment about the prestimulus depression in capex. Occam for instance hit 30 million in quarterly revenue prior to the stimulus and was profitable, but revenue has slowed to 20-22 million the last two quarters as everyone put plans on hold to evaluate the government program. As you know, a huge portion of their business is rural broadband.

So I think you are correct in your statement. There are really two near-term catalysts here for all companies in the space. 1) the stimulus dollars themselves (which I attempted to quantify in an earlier post), and 2) the resumption of normal spending patterns (and possibly catch up of several quarters of below trend spending) by the bulk of the market once winners are announced.

There was $28 billion of stimulus funds requested in the first round and only $4 billion (well, call it 5) is going out. Those not receiving awards will have to continue to build their networks and probably at an accelerated pace.

The sector is likely to get a very material bounce in the 4th quarter on the accelerated resumption of plans and what will probably be an unusually large budget flush year. Then in the first half of 2010 the actual stimulus dollars will be hitting the P&Ls of vendors geared to the space.

You are going to see some of these stock double and triple or more from here. You mention in your article that some of these stocks have already gotten their stimulus bounce. I don't think we've seen anything yet.


On Sep 07 09:49 PM Wisdom vs. Information wrote:

> gentleman, i am a strictly a trend trader, and i truly appreciate
> you adding some hard numbers. your numbers look good to me, so let
> me explain my style a little better.
>
> most importantly, i do not trust the gov't to continue the stimulus
> past the first tranche, thus i refuse to consider anything other
> than the first 7.2B. second, every one of these companies has different
> specialties, and third, each carrier has preferences, some of which
> are based upon nothing but familiarity. i started with market share
> per share to get a basic idea of who would get the best bumps. then,
> i am looking at this strictly in terms of fiber (the 58% estimate
> which i have seen as well), then who has what percentage of US fiber;
> finally, who deals with Tier 2 & 3 carriers? right there, i lose
> the ability to call hard numbers, so i begin to research who has
> been winning Tier 2 & 3 deals lately. now, i make arbitrary decisions
> based upon price value, competition and Tier 2/3 business.
>
> however, there is a larger problem with hard numbers that will blow
> away the effect of the stimulus, a reward for everyone who has read
> this far: Tier 2/3 have almost completely shut off cap ex this year
> waiting to find out how much stimulus each would get; thus, everyone's
> numbers have been hurt and shares depressed. so, consider what will
> happen to Tier 2/3 cap ex spending once the stimulus is announced?
> that is why hard numbers will have a hard time to breaking down bumps.]]> Mon, 07 Sep 2009 23:13:06 -0400
I agree wholeheartedly with you comment about the prestimulus depression in capex. Occam for instance hit 30 million in quarterly revenue prior to the stimulus and was profitable, but revenue has slowed to 20-22 million the last two quarters as everyone put plans on hold to evaluate the government program. As you know, a huge portion of their business is rural broadband.

So I think you are correct in your statement. There are really two near-term catalysts here for all companies in the space. 1) the stimulus dollars themselves (which I attempted to quantify in an earlier post), and 2) the resumption of normal spending patterns (and possibly catch up of several quarters of below trend spending) by the bulk of the market once winners are announced.

There was $28 billion of stimulus funds requested in the first round and only $4 billion (well, call it 5) is going out. Those not receiving awards will have to continue to build their networks and probably at an accelerated pace.

The sector is likely to get a very material bounce in the 4th quarter on the accelerated resumption of plans and what will probably be an unusually large budget flush year. Then in the first half of 2010 the actual stimulus dollars will be hitting the P&Ls of vendors geared to the space.

You are going to see some of these stock double and triple or more from here. You mention in your article that some of these stocks have already gotten their stimulus bounce. I don't think we've seen anything yet.


On Sep 07 09:49 PM Wisdom vs. Information wrote:

> gentleman, i am a strictly a trend trader, and i truly appreciate
> you adding some hard numbers. your numbers look good to me, so let
> me explain my style a little better.
>
> most importantly, i do not trust the gov't to continue the stimulus
> past the first tranche, thus i refuse to consider anything other
> than the first 7.2B. second, every one of these companies has different
> specialties, and third, each carrier has preferences, some of which
> are based upon nothing but familiarity. i started with market share
> per share to get a basic idea of who would get the best bumps. then,
> i am looking at this strictly in terms of fiber (the 58% estimate
> which i have seen as well), then who has what percentage of US fiber;
> finally, who deals with Tier 2 & 3 carriers? right there, i lose
> the ability to call hard numbers, so i begin to research who has
> been winning Tier 2 & 3 deals lately. now, i make arbitrary decisions
> based upon price value, competition and Tier 2/3 business.
>
> however, there is a larger problem with hard numbers that will blow
> away the effect of the stimulus, a reward for everyone who has read
> this far: Tier 2/3 have almost completely shut off cap ex this year
> waiting to find out how much stimulus each would get; thus, everyone's
> numbers have been hurt and shares depressed. so, consider what will
> happen to Tier 2/3 cap ex spending once the stimulus is announced?
> that is why hard numbers will have a hard time to breaking down bumps.]]> http://seekingalpha.com/article/160200-how-will-the-nbbi-stimulus-affect-small-and-medium-cap-communication-stocks?source=feed#comment-664517 664517 OCNW).

My thesis is that the company will run at 10% net margins on incremental business and possibly more than that on a big surge like the stimulus.

It has an Enterprise Value of $25 million. But it will earn over the next 3 years $30 million in net income from the stimulus alone and possibly more than that.

I think Occam will be multiples of its current share price over the next 12 months.

Others, like Zhone, will benefit greatly, but I think the large exposure to the stimulus that Occam has, coupled with the very low enterprise value will make it the best investment.
]]> Sun, 06 Sep 2009 18:42:58 -0400 OCNW).

My thesis is that the company will run at 10% net margins on incremental business and possibly more than that on a big surge like the stimulus.

It has an Enterprise Value of $25 million. But it will earn over the next 3 years $30 million in net income from the stimulus alone and possibly more than that.

I think Occam will be multiples of its current share price over the next 12 months.

Others, like Zhone, will benefit greatly, but I think the large exposure to the stimulus that Occam has, coupled with the very low enterprise value will make it the best investment.
]]> http://seekingalpha.com/article/160200-how-will-the-nbbi-stimulus-affect-small-and-medium-cap-communication-stocks?source=feed#comment-664509 664509
Maybe that’s high, maybe that’s not. But just to be conservative, let’s assume that only 20% of total broadband expenditures will be spend on active elements.

We know that a minimum of $7.2 billion will be spent on broadband in underserved areas, but possibly as much as double that. Again to be conservative, let’s just assume that it will be $7.2 billion.

That implies that active equipment vendors will be seeing 20% of $7.2 of funding provided by the government over the next three years. That equates to a stimulus to a small group of companies of $1.44 billion.

The estimates for market share of rural access that I have seen is the following for 2008:

Calix 37.8%
Occam 20.9%
Tellabs 19.7%
Zhone 14.2%

I don’t have any reason to believe that these market shares will change that much, with the exception of Tellabs, whose market share has been cut in half from 2 years prior and who has chosen not to focus on the access business in all its forms. So the other three probably stand to benefit from that in future share percentages.

But just using what we know from 2008, we can make a pretty reasonable guess at the revenue impact of the stimulus.

Calix $544 million
Occam $301 million
Tellabs $284 million
Zhone $204 million

These numbers could be higher if the stimulus is greater than $7.2 billion, if the active equipment components are actually closer to 35% instead of 20% and higher for Calix, Occam and Zhone if Tellabs continues to exit the access business.

I welcome your thoughts on the above.



On Sep 06 04:29 PM Toad680 wrote:

> Fair enough. My use of EV is based upon my own experiences and desire
> to put everything on an apples to apples basis before I start to
> consider other factors like margin structure, cash flow, break-even
> point.
>
> Given that we are also looking at companies in a steady state that
> are all about to be exposed to a similar catalyst, it helps to get
> a sense for the cost of the enterprise, because that can then be
> compared to the relative impact from the catalyst, which in my mind
> is the best measure of the delta here and of which stocks are likely
> to do better than others. For instance, if two companies with similar
> margin structures will get an incremental $50 million in business
> from the stimulus, but one has an EV of $25 million and the other
> of $250 million, There is clearly a lot more leverage to the stimulus
> for company 1 than company 2.
>
> But you are right, there are a lot of ways to skin a cat and it's
> not worth the time to debate the appropriate technique.
>
> What I like about Tesla's post is that he is starting to go down
> the road of measuring market share in the markets in which the stimulus
> will be spent. We know $7.2 billion will find its way into generally
> underserved areas for broadband. Some have suggested that the methodology
> for distributing the funds will actually leverage what is being handed
> out and result in up to $14 billion being spent. So somewhere between
> 7-14. Fine.
>
> Can we then break down the total dollar amount to the likely markets
> in which it will be spent ie access equipment vs laying fiber etc?
> We could then get a sense for the dollar amount going to specific
> market segments. Compare that to current market share in those segments
> and we will have a pretty goo idea of the company by company impact
> of the stimulus.]]> Sun, 06 Sep 2009 18:31:15 -0400
Maybe that’s high, maybe that’s not. But just to be conservative, let’s assume that only 20% of total broadband expenditures will be spend on active elements.

We know that a minimum of $7.2 billion will be spent on broadband in underserved areas, but possibly as much as double that. Again to be conservative, let’s just assume that it will be $7.2 billion.

That implies that active equipment vendors will be seeing 20% of $7.2 of funding provided by the government over the next three years. That equates to a stimulus to a small group of companies of $1.44 billion.

The estimates for market share of rural access that I have seen is the following for 2008:

Calix 37.8%
Occam 20.9%
Tellabs 19.7%
Zhone 14.2%

I don’t have any reason to believe that these market shares will change that much, with the exception of Tellabs, whose market share has been cut in half from 2 years prior and who has chosen not to focus on the access business in all its forms. So the other three probably stand to benefit from that in future share percentages.

But just using what we know from 2008, we can make a pretty reasonable guess at the revenue impact of the stimulus.

Calix $544 million
Occam $301 million
Tellabs $284 million
Zhone $204 million

These numbers could be higher if the stimulus is greater than $7.2 billion, if the active equipment components are actually closer to 35% instead of 20% and higher for Calix, Occam and Zhone if Tellabs continues to exit the access business.

I welcome your thoughts on the above.



On Sep 06 04:29 PM Toad680 wrote:

> Fair enough. My use of EV is based upon my own experiences and desire
> to put everything on an apples to apples basis before I start to
> consider other factors like margin structure, cash flow, break-even
> point.
>
> Given that we are also looking at companies in a steady state that
> are all about to be exposed to a similar catalyst, it helps to get
> a sense for the cost of the enterprise, because that can then be
> compared to the relative impact from the catalyst, which in my mind
> is the best measure of the delta here and of which stocks are likely
> to do better than others. For instance, if two companies with similar
> margin structures will get an incremental $50 million in business
> from the stimulus, but one has an EV of $25 million and the other
> of $250 million, There is clearly a lot more leverage to the stimulus
> for company 1 than company 2.
>
> But you are right, there are a lot of ways to skin a cat and it's
> not worth the time to debate the appropriate technique.
>
> What I like about Tesla's post is that he is starting to go down
> the road of measuring market share in the markets in which the stimulus
> will be spent. We know $7.2 billion will find its way into generally
> underserved areas for broadband. Some have suggested that the methodology
> for distributing the funds will actually leverage what is being handed
> out and result in up to $14 billion being spent. So somewhere between
> 7-14. Fine.
>
> Can we then break down the total dollar amount to the likely markets
> in which it will be spent ie access equipment vs laying fiber etc?
> We could then get a sense for the dollar amount going to specific
> market segments. Compare that to current market share in those segments
> and we will have a pretty goo idea of the company by company impact
> of the stimulus.]]> http://seekingalpha.com/article/160200-how-will-the-nbbi-stimulus-affect-small-and-medium-cap-communication-stocks?source=feed#comment-664436 664436
Given that we are also looking at companies in a steady state that are all about to be exposed to a similar catalyst, it helps to get a sense for the cost of the enterprise, because that can then be compared to the relative impact from the catalyst, which in my mind is the best measure of the delta here and of which stocks are likely to do better than others. For instance, if two companies with similar margin structures will get an incremental $50 million in business from the stimulus, but one has an EV of $25 million and the other of $250 million, There is clearly a lot more leverage to the stimulus for company 1 than company 2.

But you are right, there are a lot of ways to skin a cat and it's not worth the time to debate the appropriate technique.

What I like about Tesla's post is that he is starting to go down the road of measuring market share in the markets in which the stimulus will be spent. We know $7.2 billion will find its way into generally underserved areas for broadband. Some have suggested that the methodology for distributing the funds will actually leverage what is being handed out and result in up to $14 billion being spent. So somewhere between 7-14. Fine.

Can we then break down the total dollar amount to the likely markets in which it will be spent ie access equipment vs laying fiber etc? We could then get a sense for the dollar amount going to specific market segments. Compare that to current market share in those segments and we will have a pretty goo idea of the company by company impact of the stimulus.]]> Sun, 06 Sep 2009 16:29:01 -0400
Given that we are also looking at companies in a steady state that are all about to be exposed to a similar catalyst, it helps to get a sense for the cost of the enterprise, because that can then be compared to the relative impact from the catalyst, which in my mind is the best measure of the delta here and of which stocks are likely to do better than others. For instance, if two companies with similar margin structures will get an incremental $50 million in business from the stimulus, but one has an EV of $25 million and the other of $250 million, There is clearly a lot more leverage to the stimulus for company 1 than company 2.

But you are right, there are a lot of ways to skin a cat and it's not worth the time to debate the appropriate technique.

What I like about Tesla's post is that he is starting to go down the road of measuring market share in the markets in which the stimulus will be spent. We know $7.2 billion will find its way into generally underserved areas for broadband. Some have suggested that the methodology for distributing the funds will actually leverage what is being handed out and result in up to $14 billion being spent. So somewhere between 7-14. Fine.

Can we then break down the total dollar amount to the likely markets in which it will be spent ie access equipment vs laying fiber etc? We could then get a sense for the dollar amount going to specific market segments. Compare that to current market share in those segments and we will have a pretty goo idea of the company by company impact of the stimulus.]]> http://seekingalpha.com/article/160200-how-will-the-nbbi-stimulus-affect-small-and-medium-cap-communication-stocks?source=feed#comment-664110 664110
For instance, you mention Occam networks as being cheap. But with $2.10 per share in net cash, it's even cheaper on an EV/sales basis.

Others with a lot of debt are going to look more expensive.

It would be interesting, and perhaps more user friendly, to see these metrics in a table as opposed to sporadic mentions in the text. That way they could be compared and contrasted relatively easily.

Thanks for the comments. I agree with you that this space is in for a nice run.]]> Sun, 06 Sep 2009 12:34:04 -0400
For instance, you mention Occam networks as being cheap. But with $2.10 per share in net cash, it's even cheaper on an EV/sales basis.

Others with a lot of debt are going to look more expensive.

It would be interesting, and perhaps more user friendly, to see these metrics in a table as opposed to sporadic mentions in the text. That way they could be compared and contrasted relatively easily.

Thanks for the comments. I agree with you that this space is in for a nice run.]]> http://seekingalpha.com/article/123156-why-occam-networks-earnings-will-continue-to-surpass-expectations?source=feed#comment-591320 591320 Thu, 16 Jul 2009 20:28:24 -0400 http://seekingalpha.com/article/98479-citi-examines-its-carrots-and-sticks?source=feed#comment-273294 273294
If they think more banks are going to see this kind of trouble and want to maintain credibility in the bidding process, don't regulators have to enforce their first two bidder auction? You ask banks to step up and take on a great deal of risk, but don't actually deliver the reward? The next time this happens, how many won't bid? Or of those that do, will they come with their best bid?

One could also argue that Wachovia might have gone bust had it not been for the interim liquidity provided by Citi. In a normal bidding war, this might be fair play by Wells. But somehow it seems unethical to me for Wells to now take WB after the collapse has been averted and the rules have changed.

I would be surprised if Citi took this under the original terms. But I think regulators damage their credibility if they let Wells walk away with Wachovia now that the risks are a lot lower.]]> Sat, 04 Oct 2008 05:46:19 -0400
If they think more banks are going to see this kind of trouble and want to maintain credibility in the bidding process, don't regulators have to enforce their first two bidder auction? You ask banks to step up and take on a great deal of risk, but don't actually deliver the reward? The next time this happens, how many won't bid? Or of those that do, will they come with their best bid?

One could also argue that Wachovia might have gone bust had it not been for the interim liquidity provided by Citi. In a normal bidding war, this might be fair play by Wells. But somehow it seems unethical to me for Wells to now take WB after the collapse has been averted and the rules have changed.

I would be surprised if Citi took this under the original terms. But I think regulators damage their credibility if they let Wells walk away with Wachovia now that the risks are a lot lower.]]> http://seekingalpha.com/article/56492-india-funds-offer-investors-potential-for-sustained-high-level-growth?source=feed#comment-104427 104427
However, you will not be able to isolate great themes via funds. In fact, when I looked at the Sensex a few months ago (I am sure these statistics are dated), 40% of the members were actually down on the year and six of the thirty were down by 35% or more. The Sensex's performance this year has been driven by massive performance by a few select names like Reliance and HDFC. There is a lot of alpha to be earned in India, if you have good ideas.

The only benefit I see to funds is that many in the US are trading at a discount to their NAVs. Other than that, you guarantee average returns. But maybe your water idea is better than average?

IVRCL, hyderabad based, is the company you want to buy if you have conviction. It's the best water play in India (desalinization, purification, irrigation), but also leveraged to infrastructure such as construction and roads--no shortage of work there, either.

UBS can set you up with an account to trade in countries like India for a min USD 1 million in assets. You don't need that much if you are willing to pay a fee (maybe USD 400 per year) for the account--but that's doesn't seem like that much if you want access to this market.

There have been changes in the availability of P-notes in the country, so it may be incrementally more difficult. But I think they can still set you up.]]> Fri, 07 Dec 2007 02:17:36 -0500
However, you will not be able to isolate great themes via funds. In fact, when I looked at the Sensex a few months ago (I am sure these statistics are dated), 40% of the members were actually down on the year and six of the thirty were down by 35% or more. The Sensex's performance this year has been driven by massive performance by a few select names like Reliance and HDFC. There is a lot of alpha to be earned in India, if you have good ideas.

The only benefit I see to funds is that many in the US are trading at a discount to their NAVs. Other than that, you guarantee average returns. But maybe your water idea is better than average?

IVRCL, hyderabad based, is the company you want to buy if you have conviction. It's the best water play in India (desalinization, purification, irrigation), but also leveraged to infrastructure such as construction and roads--no shortage of work there, either.

UBS can set you up with an account to trade in countries like India for a min USD 1 million in assets. You don't need that much if you are willing to pay a fee (maybe USD 400 per year) for the account--but that's doesn't seem like that much if you want access to this market.

There have been changes in the availability of P-notes in the country, so it may be incrementally more difficult. But I think they can still set you up.]]>