Merrill Boosts AFC
Analyst Simon Leopold writes that the company will probably see some short-term help from Verizon's remote terminal DSL efforts and a long-term boost from the big fiber-to-the-premises (FTTP) request for proposal (RFP) that Verizon Communications Inc. (NYSE: VZ), BellSouth Corp. (NYSE: BLS), and SBC Communications Inc. (NYSE: SBC) are working on now (see Vendors Await FTTP Shortlist).
Merrill took AFC's 2003 revenue estimate from $333.5 million (39 cents a share) to $340 million (42 cents a share).
That's good news for AFC and for the DLC market in general. Indeed, were it not for the promise of a big push in the FTTP (fiber to the premises) market, there are plenty of reasons to think that the DLC market is in for a bumpy ride in the next few quarters, given that carriers have cut capital spending and the fact that the market seems overcrowded (see DLC Shakeout Looms).
Investors cheered the news, and AFC's stock continued the steady climb it began around July 1. AFC shares closed up $1.19 (5.3%) to $23.30 in trading on Wednesday. The stock traded at $16.18 on July 1 and didn’t trade above $20 during all of 2002.
In the near term, Leopold and company say, Verizon appears to have shifted its spending focus from central office DSLAMs to DSL gear in remote terminals. Verizon has gear from AFC, Lucent, and Alcatel in its RTs. "We think that Verizon could show up as a 10 percent customer for AFC in 3Q03 and/or 4Q03," he writes. Merrill Lynch estimates that Verizon will have 650,000 total net DSL customer additions this year; to hit that mark the carrier must add 194,000 customers during each of the next two quarters. That would be a jump of about 50 percent compared to the first half of this year. If that doesn't require some equipment adds somewhere, what will?
For AFC's future, Merrill Lynch estimates that the RBOCs in the FTTP RFP will spend about $300 million to $400 million during the first year of deployments with the vendors it picks. This puts AFC in a nice position, as it is an incumbent access equipment provider.
— Phil Harvey, Senior Editor, Light Reading