|Q & A with a Nervous Investor |
Q: So, how heavily are you invested in the fiber optic sector? Tell the truth now...
A: I bought in hook, line and sinker. I even had a Gilder subscription for a while! What a joke that was. I am, today, the nervous owner of several tarnished stars from last summer: LVLT (3000 shares at $20 avg.), MFNX (2500 shares at $12 avg), GX (1500 shares at 19 avg.), AVNX (300 shares at $11 avg), GLW (300 shares at $18 avg.)
Q: Why have you stayed long while your portfolio shrinks before your eyes?
A: Good question. I guess I have not stopped believing that broadband internet demand is here to stay, although I also think I was not realistic about the pace at which applications and connectivity would develop to take advantage of the infrastructure in which I am primarily invested. I still think it will happen. I'll just have to wait a while I guess.
Q: What do you make of all this talk about a bandwidth glut?
A: From what I can tell, it is a fallacy. If we're talking about lit fiber, the supply is basically constant right now and is being sucked up steadily, though not exponentially. Dark fiber is abundant but I don't see why that is a problem. Won't it get lit up as demand dictates?
Q: Accepting that premise, will your chosen companies be able to hang until the demand/supply equation tips back in their favor so can sell some of their unlit capacity?
A: That is the question being asked by the capital markets isn it. I think LVLT, GX, and MFNX are more likely than others to last. LVLT is mostly built out and fully-funded. It has substantial credit facilities, a top-pedigree management, and has non-core assets (the coal mining operation) it can sell if it needs more of a cushion. GX is nearly built out and dominates in the subsea category. GX did a smart thing spinning out ACGX and its associated debt a while back, and also teaming with EXDS to drive traffic to the GX network. It is also easy to forget that GX got a hefty capital infusion last year courtesy of Q when Q decided it had to have USW. MFNX looks awfully good in terms of competitive position in the metro loops. On the capital side, it has a major, well-financed shareholder in Verizon. Lets not forget the Goldman put MFNX on its Rec (not "Wreck" heh heh) List for a reason earlier this year.
Q: What is going to stimulate new demand?
A: Interest rates need to drop to stimulate corporate IT spending. And the last mile problem has to be solved. As to the former, I just cross my fingers. I'm no economist. As to the latter, I have to think that is a matter of "when" not "if." Once you've had high speed access at home or work, there is no going back. It's like a drug. When businesses see what can be done with realtime video applications instead of face of face meetings, the cost savings are obvious. Ultimately, the market will force a last mile solution, I think, because the potential rewards are so high. When that occurs, the long haul and metro loop providers who survive surely will be standing in the background to provide Problem Solver's single most important raw materials: seamless connectivity and limitless bandwidth.
Q: So I guess you have it all figured out, huh?
A: No, in fact I'm so nervous I'm going through self-examination exercises like this. But I'm hopeful and still willing to believe that the better companies will get through this debacle. Check back in 18 months.
Q: Are you still buying?
A: Yes, I'm averaging down but it sure is hard.