By SARA FISHER
Staff Reporter
No one is celebrating the proposed merger of AT & T; Corp. and Tele-Communications Inc. more than the people at Alhambra-based Ortel Corp.
Ortel manufactures a wide range of laser and fiber-optic products that carry signals for cable television channels. With AT & T; poised to spend a small fortune in overhauling TCI’s notoriously outdated cable network, the beleaguered Ortel’s prospects suddenly look quite healthy.
Its stock rose from the mid-$15 range to the mid-$16 range within a day of the merger announcement on June 24.
“Ortel and other providers to cable companies should benefit greatly from AT & T;’s deep pockets,” said David Kang, an analyst for Seidler Co. “Things are definitely looking better for the company, but now we need to see hard evidence of spending coming from the merger.”
Ortel President and Chief Executive Wim Selders is careful to not overstate expectations in the wake of the AT & T; announcement.
“We believe the merger will renew what has been erratic spending behavior in the (domestic) cable industry,” Selders said. “(Wall Street) is forecasting very optimistic outcomes for cable equipment providers like us. I would like to see what actually happens.”
Wall Street forecasts have taken an about-face for the manufacturing company, which also makes equipment for wireless and satellite communications. Due to a one-two punch of the Asian crisis and domestic cable companies dragging their feet on purchasing new fiber-optic cable, Ortel weathered a bleak financial period.
For fiscal 1998, which ended April 30, its net income plummeted to $2.7 million (22 cents per share), down from $8.3 million (66 cents) a year earlier. Revenues were $76.9 million, down from $82.6 million.
For the fourth quarter, its net loss was $1 million (9 cents), compared with net income of $2.3 million (18 cents) for the like period a year ago. Revenues for the quarter were $16.3 million vs. $21.5 million.
“The Asian crisis hit us very hard since a full 25 percent of our business is in Asia,” Selders said. “Our (fourth-quarter) revenues fell, and we were left running our business activity geared at the $22 million level when we were actually at the $16 million level. It was very unexpected.”
Ortel’s bottom line also was hurt by a virtual freeze in domestic cable spending the result of deregulation, a series of mergers and growing interest in broadband applications. Spending has started to pick up over the last couple months, but an upgrade for TCI’s network would signal the first large-scale investment.
“Spending in the domestic broadband sector took a major dive,” said Richard Prentiss, an analyst at Raymond James Financial Inc. “There was an often-promised ‘return to spending’ but that didn’t happen until a couple months ago. Now, cable companies such as Tele-Communication are starting to move forward and cable spending seems to have turned a corner.”
Selders confirmed that Ortel’s sales had picked up in the current quarter.
Its stock has been driven upward by analyst optimism. After peaking at $25 per share last August, Ortel shares bottomed out at around $10.50 in late February as word of decreased earnings started to circulate. As of last week, its stock had climbed back.
“Ortel stock will continue to go up to the $20s-per-share range,” Kang said. “We’re talking several years of increased sales, not just a couple of quarters now that cable companies are moving forward.”
And despite the floundering Asian markets, Ortel opened up its Asian headquarters in Singapore on June 2 and has plans to open an office in Beijing in September. Selders expects long-term growth in Asia’s communications industry, calling the area “down but not out.”
“If you want to get the contracts in Asia tomorrow, you have to be there today,” Prentiss said. “Asia is still a large growth area for communications.”
With the domestic market already improving and with its foreign market representing significant opportunity, both company executives and company watchers cautiously predict that Ortel’s performance will continue to recover.
“We believe that the worst is behind us,” Selders said. “Things are looking pretty good now, and we believe that business is going to be picking up.”
