Extra
WiMax poised to nudge out fiber optics
Intels report of a promising new wireless computing chip was largely ignored last week. I see an opportunity to ditch the wires and invest in the future.
By James B. Stewart
I know all of you have heard of WiFi, the hot wireless communications technology now available at your neighborhood Starbucks (SBUX, news, msgs) and McDonald's (MCD, news, msgs). Maybe you're even reading this column on it. But how about WiMax?
In an announcement last week that didn't get nearly the attention I thought it deserved, Intel (INTC, news, msgs) said that it was hoping to do for WiMax what its enormously successful Centrino chip has done for WiFi, which is to make it the state-of-the-art technology for wireless broadband transmission into the home. (Where WiFi provides wireless network connectivity over relatively small areas such as offices or "hot spots," WiMax can connect over a distance of 30 miles to thousands of users from a single base station -- thus serving as an alternative to DSL or cable connections for broadband subscribers.) In my view, this could be Big. Big, that is, for Intel and its technology partners. It could be terrible for all the fiber-optics companies still betting on broadband access over fiber-optic cables. Needless to say, this has enormous investment implications.
Not that the market paid the slightest attention to this, so far as I can tell. Intel fell slightly, and the fiber-optics companies actually rose, especially JDS Uniphase (JDSU, news, msgs), which recently has been buoyed by takeover rumors. But this is exactly the kind of fundamental information with very long-term implications that the market seems to have difficulty digesting. This opens opportunities for people like us.
I would love to get rid of all the wires
One of the big forces behind the recent technology bubble was the potential of broadband in the home, a "Jetsons"-like vision of the future wildly championed by gurus such as George Gilder, now driven into obscurity by the collapse of the tech sector. But now some of the promise is actually being realized, as all those young people hunched over their laptops in coffee shops and airports make clear. Imagine digital, wireless downloads of your favorite movies direct to your new flat-panel video screen.
Having just bought a marvelous new Apple Computer (AAPL, news, msgs) laptop (sorry, Intel), I can say that I would love to get rid of those unsightly wires I find myself dragging around. I'm seriously considering one of those wireless base stations in my apartment that relies on WiFi. WiMax would make all that unnecessary.
Obviously, Intel agrees. Sean Maloney, general manager of Intel's wireless division, in comments reported in the New York Times, said that growth in wireless communications would be as fast as the Internet expansion of the mid-1990s. "It looks like the Internet in 1994," he said. "The next 10 years will be defined by broadband wireless." In a blow to the fiber-optics sector, he added, "There is no great fiber build-out going on. Some kind of wireless capacity is necessary to reach the last mile."
As an Intel shareholder, I'm delighted by this development. Indeed, Intel is my largest and longest-term holding, even though I give it away to charity almost every year. So I'm not running out to buy more. But if I didn't already own so much, I certainly would increase my shares at the first buying opportunity or sign of weakness in the stock.
Im worried about fiber optics
But I am worried about my holdings in the fiber-optics sector, which include Corning (GLW, news, msgs), JDS and Ciena (CIEN, news, msgs). Corning is a stock I recommended a while back in my discussion of new-technology televisions, which turned out to be prescient. Not only has the stock risen, but Corning reported its earnings last week and noted that it can't keep up with demand for its flat-panel screens. So I don't even think of Corning anymore as primarily a bet on fiber-optic communications.
JDS and Ciena are more heavily dependent on a fiber-optic build-out, though Ciena has been acquiring nonfiber start-ups, and JDS gets half of its revenue outside the telecom sector. Moreover, JDS has been the subject of takeover speculation, and if it did get an offer, its shares would surely rise even further. In general, Wall Street analysts, who adored Ciena and JDS during the technology bubble, now hate them, which hasn't stopped the stocks from rising handsomely. Still, with the Nasdaq ($COMPX) now at another of my selling targets (2,150), this seems as good a time as any to bail out, which I plan to do.
Incidentally, if you want to take profits (if you have any in these stocks, which are still way off their all-time highs) but still maintain an upside exposure, you could always buy call options. But you will pay a premium for these volatile stocks: The Ciena July 7.50s were fetching $1.30 this week; the JDS September 5s were even richer, at $1.20. I'd wait for a pullback. Or, as an alternative, you could sell these same calls, locking in some gains even if the stock declines. Whichever, I'd be formulating an exit strategy.
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