Gilder Backs Corvis
Gilder has long said he's not into "stock-picking." But tell that to Wall Street, which has religiously followed Gilder's picks for years.
Before you log on to E-trade, take note of some other adjustments to the GTR list. Previous "hot" Gilder fiber-optic picks Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT) have mysteriously dropped off the list, with nary a mention in the newsletter. Out of sight, out of mind?
The rationale behind the Corvis pick? Gilder and GTR analyst Charles Burger write in April's issue that Corvis fits well into their larger theme, which is that the massive addition of bandwidth will render irrelevant many of the finer points of optical networking, such as the grooming of STS1 (51.8 Mbit/s) circuits and software management features. In the Gilder vision of the future, optical bandwidth is so overabundant that packing the pipes in a neat and efficient fashion isn't worth the trouble. It also assumes that electronics will be quickly booted out of the optical network.
"Light will be 10 orders of magnitude more reliable and 10 orders of magnitude faster," write Gilder and Burger in the newsletter. "The network would harden. Whether in the BlueArc Silicon Server or in a Corvis or Avanex Corp. [Nasdaq: AVNX] network, software complexities rooted in the scarce processing power and memory of the microchip can be driven out by wasting the abundant gates of FPGAs [field-programmable gate arrays] or in the copious bandwidth of the optical fiber."
In short, Gilder and Burger believe that Corvis's small port-count, all-optical switches in the core will supercede optical-electrical-optical(OEO) switches offered by competition such as Ciena Corp. (Nasdaq: CIEN). In fact, the GTR has beaten up on Ciena in recent months, saying the company's focus on software has been misguided.
Interestingly enough, Corvis is developing OEO products that will more directly compete with Ciena's offerings. The most obvious is a grooming switch, which, of all things, addresses the manipulation of finer circuits such as STS1 (see Corvis Offers Grooming Tips). Despite Gilder's mantra of "waste the bandwidth," it appears that telecom carriers are still demanding such functionality in switches, and this has been the primary driver behind Ciena's recent sales success. Corvis has taken note.
The Corvis pick comes at in interesting time. Usually, Gilder pays no heed to valuation, focusing instead on pure technology. This time he has picked a stock whose valuation has been drastically reduced by the technology bear market. Following its IPO last summer, Corvis traded at a valuation of $25 billion, even though it had yet to receive one dollar in revenue. On Tuesday morning it was trading at about 8.00, giving it a valuation of $3 billion. If the company's promised contracts with Williams Communications Group (NYSE: WCG) and Qwest Communications International Corp. (NYSE: Q) come through, the company could hit $500 million in sales in the calendar year 2001. If Corvis lands some of the new customers it's been whispering about, it could lead to the company actually beating its guidance for 2001 (see Corvis Closing in on New Customers).
-- R. Scott Raynovich, Executive Editor, Light Reading http://www.lightreading.com