2003 Top Ten: Explosions & Implosions

News Analysis Light Reading 12/30/2003

It was the best -- or, at least, better -- of times for stocks this year. The Dow Jones regained 10,000 and the Nasdaq Composite rose nearly 50 percent to approach 2,000. Jumps of 100 percent or more were easy to find among tech stocks, albeit because so many entered 2003 in the sub-dollar range (see LR Index Led Rally in 1H 2003). But bankruptcies continued to roil, and some big names managed to sink even further.

Here, then, is our summary of the year's most interesting winners and losers. Note that the criteria go beyond raw stock price. That keeps the "implosions" category from being dominated by liquidations and makes the "explosions" more meaningful. (Sorry, Digital Broadband Networks Inc. [OTC: DBBD] -- yes, you're up 1,100 percent, but you started at 5 cents per share.)

EXPLOSIONS

Intel Corp. (Nasdaq: INTC) up 100 percent, Foundry Networks Inc. (Nasdaq: FDRY) up 265 percent, Avanex Corp. (Nasdaq: AVNX) up 330 percent. Not enough! It's the penny-stock underdogs that sported the spectacular gains. Some climbed back to respectability, others are still on the edge:

No. 5 Akamai Technologies Inc. (Nasdaq: AKAM)

Jan. 1, 2003 price: $1.73
Dec. 23, 2003 price: $11.14
Change: +544%

Let's be clear: Akamai, whose stock price soared beyond $300 four years ago, is an Implosion Hall of Famer. But if you emerged from a block of ice on Jan. 1 and invested, you'd be ignorant and happy. Whether Akamai can keep climbing in 2004 will depend on competition from the likes of Netli Inc. and Savvis Communications Corp. (Nasdaq: SVVS).

Savvis Gets Savage

No. 4 Sonus Networks Inc. (Nasdaq: SONS)

Jan. 1, 2003 price: $1.00
Dec. 23, 2003 price: $7.53
Change: +653%

Once a $99-per-share player, Sonus clawed back and saw its market capitalization surpass $2 billion. Like many stock explosions of 2003, Sonus benefitted from voice over IP (VOIP), which generated more hype than a J.Lo-B.Fleck boxing match. Taking advantage of its newfound wealth, Sonus cranked a secondary offering in April. It then proceeded to land some actual, real business from some big North American carriers, including monster RBOC Verizon Communications Inc. (NYSE: VZ). The stock has more than doubled since that April offering.

No. 3 FLAG Telecom Group Ltd. (OTC: FLHLQ)

Jan. 1, 2003 price: $7.00
Dec. 23, 2003 price: $94.63
Change: +1,252%

This is what the Redbacks and MCIs are hoping for: emerging from Chapter 11 to get acquired for $97 per share. Network wholesaler FLAG came out of bankruptcy in October 2002 and fled to the pink sheets with a stock that was trading at a respectable $7. Then it rocketed into the 90s.

Huh? Is that right -- or just some cruel echo of 1999?

It appears FLAG will cash out with an acquisition by Reliance Infocomm Ltd. that's expected to close next month.

Before breaking out the champagne for FLAG, though, consider this. The company's undersea network cost more than $1.2 billion to build. Reliance is grabbing it for just $211 million.

No. 2 8x8 Inc. (Nasdaq: EGHT)

Jan. 1, 2003 price: $0.22
Dec. 23, 2003 price: $4.94
Change: +2,145%

Ah, the nine lives of 8x8. In 16 years it's been a chip company, a software company, a dessert topping, a floor wax... Its latest incarnation, as a VOIP service provider, paid off handsomely this year as 8x8 got sucked into the VOIP vortex of hype. Percentage-wise, 8x8 blew away VOIPsters ITXC Corp. (Nasdaq: ITXC) and Net2Phone Inc. (Nasdaq: NTOP), each up roughly 65 percent on the year.

No. 1 Carrier Access Corp. (Nasdaq: CACS)

Jan. 1, 2003 price: $0.38
Dec. 23, 2003 price: $12.32
Change: +3,142%

Never heard of them? You're not alone; Multex lists only two analysts tracking the equipment vendor. Some modest profits and an expansion into passive optical networking (PON) catapulted Carrier Access from total obscurity into double-digit obscurity, with a hefty price-to-forward-earnings ratio of around 50. That's a bit high for someone who isn't exactly Intel (P/E of 45), so it's possible investors have set up the company for a collapse. Possibly noting this, company officials recently filed for a 6 million share secondary offering, collecting cash while the numbers still look good.

Giddiness over such tiny but high-flying companies had one analyst remarking to Boardwatch, "Where can a little company go with a price of a few cents, apart from up?" Well... keep reading!

IMPLOSIONS

So what of those that didn't have a Carrier Access kind of year? We skipped those that vanished from the landscape (Com21, for example) but included a couple of prominent delisted firms. The year's most noteworthy decliners:

No. 5 Sorrento Networks Corp. (Nasdaq: FIBR)

Jan. 1, 2003 price: $4.15
Dec. 23, 2003 price: $2.90
Change: -30%

Sorrento is still down in the dumps and wasn't helped by a revenue glitch caused by AT&T's cable merger with Comcast Corp. (Nasdaq: CMCSA, CMCSK). Still, Sorrento completed its restructuring, and the stock is up since the $17 million acquisition of LuxN Inc., so investors might have reason to look forward to 2004.

No. 4 Digital Lightwave Inc. (Nasdaq: DIGL)

Jan. 1, 2003 price: $1.23
Dec. 23, 2003 price: $0.79
Change: -36%

It's a less sunny story at Digital Lightwave, and the numbers in the company's latest SEC filing don't offer much hope. Digital Lightwave's cash reserves fell to $138,000 -- plus $1.6 million in "restricted cash and cash equivalents" -- in September. Creditors have filed lawsuits seeking a combined $26 million in damages, some of which is being whittled down in settlements. And since February, the company has borrowed $11.3 million from entities controlled by Digital chairman Bryan Zwan, with $10.35 million of those loans outstanding.

No. 3 Redback Networks Inc. (Nasdaq: RBAK)

Jan. 1, 2003 price: $0.84
Dec. 23, 2003 price: $0.319
Change: -62%

Oh, but don't forget -- bankruptcy is a good thing (see Turkey Awards). Redback may be setting itself up for a run at the 2004 Stock Explosions list, but such a surge won't help previous shareholders, who'll start with just 5 percent ownership in the reorganized company

Separately, the SEC is investigating Redback's dealings with Qwest Communications International Inc. (NYSE: Q), a move that's triggered the obligatory shareholder lawsuit.

No. 2 WorldCom/MCI

Jan. 1, 2003 price: $0.14
Dec. 23, 2003 price: $0.0165
Change: -88%

(Figures are for WorldCom's stock, ticker WCOEQ. MCI, ticker MCWEQ, fell 75 percent.)

With the company awaiting bankruptcy approval, it's not really clear whether these MCI "shares" are worth anything other than being the playthings of pink-sheet investors, but it's all we had to go on.

And surprise! Even in the netherworld of the pink sheets, WorldCom wasn't worst, despite getting squashed into a black hole of investors' dreams. The year started with CEO Michael Capellas saying, "In 100 days, we're going to determine our future." Within those 100 days, WorldCom reported profits, filed a reorganization plan, and adopted the MCI name.

Nice start, but then came the fines and the criminal charges, not to mention outrage over a restructuring that vaporizes most of MCI's debt.

No. 1 Allegiance Telecom Inc.

Jan. 1, 2003 price: Approx. $0.60
Dec. 24, 2003 price: $0.038
Change: -94%

It's just the luck of the numbers, and not revenge for a certain outage in May (see Big Dig KOs Light Reading), that puts Allegiance in a class beyond even WorldCom. Allegiance manages to take the top implosion spot before bowing out; Qwest this month offered to buy the carrier out of bankruptcy for $300 million. It's a tough end for the six-year-old local exchange carrier and former $100-per-share honey, whose 36-state network will fill in some gaps for Qwest.

— Craig Matsumoto, Senior Editor, Light Reading