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New Focus Buys Some Growth

Light Reading
News Analysis
Light Reading
10/27/2000

New Focus Inc. (Nasdaq: NUFO) is employing acquisition as an early growth strategy.

The company today filed an 8-K document with the Securities and Exchange Commission, indicating it will spend $600 million to acquire JCA Technology Inc., a privately held manufacturer of chips and amplifiers for OC192 and OC48 networks. The deal, set to close before year's end, calls for New Focus to trade $575 million in common stock plus $25 million cash on the acquisition. New Focus says the deal will give it a new set of customers, plus an expanded product line.

New Focus also plans to spend $50 million on another privately held company, Globe Y Technology Inc., which makes machines that are used to make fiber optic couplers and splitters. This acquisition is aimed at giving New Focus's manufacturing a boost.

The company says the acquisitions will be "immediately accretive" to New Focus's financials as soon as they take effect. The 8-K says that JCA is already profitable and had revenues of $13.9 million during the first nine months of 2000. Globe Y is also profitable, says New Focus, and showed $4.8 million in revenues during the first nine months of 2000.

Earlier in the week, the company reported earnings: Net revenues were $22.2 million, 54 percent higher than the previous quarter (which, incidentally, was 48 percent higher than the first-quarter results). Sales of the company's fiber optic components grew 76 percent, and sales of its photonic tools, which are used to create fiber optic parts for optical networking devices, were up 22 percent. The company had a pro forma net loss of $0.02 in earnings per share.

Following the earnings announcement, several analysts raised their estimates for the company. Epoch Partners analyst Mark Langley raised his 2000 revenue estimate to $73.9 million from $61.8 million and the 2001 estimate to $161.8 million from $123.9 million.

CIBC World Markets analyst Jim Jungjohann also raised estimates, expecting 2000 and 2001 revenues to be $73.4 million and $150 million, respectively, up from former estimates of $62.5 million and $122.2 million, the note says.

The reflects the strength of the optical components sector, despite reports of disappointments in the telecom sector (see JDSU: There's No Industry Slowdown).

New Focus shares were up 1.63 points, trading at $61.63 early this afternoon.

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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