The reporting season is coming to a close for leading US companies, but will last another two weeks for Israeli ones. Radware Ltd. (Nasdaq: RDWR; TASE:RDWR) published an unexpectedly good financial report for the third quarter on Friday, beating the most optimistic analysts’ forecasts. It also published an especially strong guidance for the fourth quarter. But its share did not soar from the surprise in the way market leader F5 Networks Inc. (Nasdaq:FFIV) did a few days earlier when it, too, published unexpectedly good financials.
As far as investors are concerned, Radware was heavily fined for two severe profit warnings, which will not be quickly forgiven. Investors are seeking a slew of consecutive favorable financial reports like the one published by F5, without any obstacles en route. Radware CFO Meir Moshe declared, “Business is strong, and the company won’t be sold at this price.”
From this I can only conclude that there is a “for sale” sign outside the company, but at a higher price. F5, with a share price of $50 or more, now has the wherewithal to pay more, and in my opinion, Radware is worth it. At its current share price of $18, Radware has almost $9 per share in cash, which is the same amount that F5 has, except that F5’s share price is $51.
Check Point Software Technologies Ltd. (Nasdaq: CHKP) again proved to investors that growth is hard to achieve I suggest that frustrated investors should forget about a dramatic rise in the share, because this will be a marathon. It buys a small $200 million company, absorbs it over two years, then buys another small $200 million company, absorbs it over two years, and so on. When it has five or six of these companies, growth will come. It’s good that Check Point is buying back shares, after refusing to do so for years. Had it done so, its p/e ratio would not be anything special.
Real growth is what SanDisk Corporation (Nasdaq:SNDK) and M-Systems Flash Disk Pioneers Ltd. (Nasdaq:FLSH) have. SanDisk delivered the goods ten days ago, and now is the turn of M-Systems, on Thursday morning, before the market opens. The fact that M-Systems dared to publish a shelf prospectus for another $200 million issue a week before its results proves to me that the company is sure that its results, guidance, and maybe more announcements in the pipeline, will provide a good safety net for the planned issue.
Thinking back to comments by M-Systems president and CEO Dov Moran in a very personal interview with “Globes” (in Hebrew) a month ago, in which he said his dream was to sign another contract for delivering flash memory processors, and the new shelf prospectus, it seems that the reason for raising money is to make this dream come true. A new potential supplier could be in the US, Micron Technology Inc. (NYSE:MU), which will diversify the geography of M-Systems’ suppliers, all of whom are in the Far East Japan, South Korea, and possibly China, where Hynix Semiconductor (KSX:660) is building a fab. Other possible suppliers could be one of the giant manufacturers buying know-how from Saifun Semiconductors Ltd., in which M-Systems owns a 2% stake (as of December 2004), and which will hold an IPO soon.
When I wrote these lines (before Orckit Communications Ltd. (Nasdaq:ORCT; TASE:ORCT) published its third quarter financial report), everything was already known in the market, including investors’ reactions both in Israel and in New York. Maybe the reason for the roller-coaster ride in the company’s share during October will finally become apparent. Without trying to guess what it published, I’ll only say that in general, this is a market in which Japan’s KDDI Corporation (TSE:9433) is only the tip of the iceberg.
If Orckit’s Corrigent Systems can hold onto its technological edge., which its people rate as “poor” for at least two years, compared with competitors as far the high-end metro market is concerned, then the giant US market is waiting for it in a year or two.
Orckit’s longstanding customer, US telephony giant Verizon Communications (NYSE:VZ), to whom Orckit sold hundreds of millions of dollars worth of last-generation ADSL equipment, is now building the most advanced communications network possible, a fiber-to-the-home (FTTH) network to replace its copper wire network. Simply because the copper wires were buried for decades and no one dared invest in their replacement, DSL was invented.
Verizon CEO Ivan Seidenberg was interviewed on Friday by CNBC star reporter Maria Bartiromo. She attacked him, claiming that Verizon’s share was a bitter pill for the company’s investors, because it was the only share in the industry still in a slump after three years. Seidenberg replied that Verizon had taken a courageous decision to invest $1 billion over the coming years in deploying an optical network that will provide its customers with the most advanced services, and until then, he wasn’t interested in the share. He said that those with patience would wait, because Verizon would then make a very large profit, since it would be the advanced broadband services market leader.
Corrigent is very active in the US, and it may already report a multimillion-dollar order for equipment from a small and fairly unknown customer, but companies like Verizon are the winning lottery ticket for the US market, and Verizon will begin ordering equipment like Corrigent's a few months before launching its new network.
Published by Globes [online], Israel business news - www.globes.co.il - on November 1, 2005