DISA Talk Bounces Stocks
Two of the reported GIG-BE winners saw their stocks drop in late afternoon trading, while the other two enjoyed the kind of bump one usually associates with scoring a multiyear, multimillion-dollar contract win.
Cisco Systems Inc. (Nasdaq: CSCO) dropped $0.05 (0.24%) to $20.66, and Ciena Corp. (Nasdaq: CIEN) fell $0.04 (0.57%) to $6.92. Meanwhile, Juniper Networks Inc. (Nasdaq: JNPR) climbed $0.39 (2.32%) to $17.18, and Sycamore Networks Inc. (Nasdaq: SCMR) shot up $1.07 (25.91%) to $5.20.
The reactions were mixed only because the results were mixed. Our sources said Cisco won the multiservice provisioning platforms (MSPPs) chunk of the GIG-BE deal, but it lost the core routing portion to rival Juniper. They further said that Ciena won the optical transport systems (OTSs) business, but lost the optical digital crossconnects (ODXCs) piece to Sycamore.
For Sycamore, the win was a huge one, despite industry chatter that it cut prices drastically to win the business. "Potential pricing discounts concern us, and we suspect some deals may have been won with low margin," writes Merrill Lynch & Co. Inc.'s Simon Leopold, in a note to clients this morning.
"Although we can’t criticize the loss-leader strategy given that a win in GIG-BE could give a vendor bragging rights and lead to a chain reaction of commercial wins, we think aggressive pricing might have played a factor in some wins."
In fact, Sycamore may have won the deal at the last minute with an aggressive pricing concession, according to another source.
It's likely that until the fine details of the DISA contract come out (it isn't clear when), stocks will continue to bounce around. Details such as pricing and the exact revenue that each vendor could get would have further impact.
The entire GIG-BE deal was expected to draw $800 million to $900 million across all equipment and services categories. UBS Warburg LLC analyst Nikos Theodosopoulos writes in his morning note that, over the next two years, the OTS portion of GIG-BE is valued at $150 million or more; the MSPP portion and the ODXC portion are valued at between $50 million and $75 million each; and the IP routing section is valued at around $70 million.
Such numbers have a smaller impact on large companies such as Cisco, which have billions of dollars in revenue, but they could represent a major windfall to a company like Sycamore, which recently had quarterly revenues in the single-digit millions.
Sycamore, a company that raked in $38.3 million for its fiscal year 2003, could make upwards of $100 million over the next two years, barring any further changes to the government's GIG-BE plans, analysts say.
For Corvis Corp. (Nasdaq: CORV), the news wasn't so good. Investors pummeled Corvis for not having decisively won the entire OTS part of GIG-BE. Corvis shares fell $0.51 (25.76%) to $1.47 during late afternoon trading on Friday, and the stock was the most active of the day, with about 17 times its usual volume of shares changing hands.
Several sources said the news of the potential contract awards came as a major blow to Lucent Technologies Inc. (NYSE: LU), which was aggressively pursuing the business.
— Phil Harvey, Senior Editor, Light Reading