BizAnalyst Network: Lightspeed Computer Chips [CLZR, MCK]

Friday, November 11, 2005

Lightspeed Computer Chips [CLZR, MCK]

Lightspeed Computer Chips
Thursday, November 10th, 2005
Baltimore, MD * Jackson, WY * Missoula, MT

In this Issue...

* Opto-chips
* Candela Update
* Seeing Green in Atlanta
* Waking Dragon: Alpha-States

Quote of the Day

"He who controls others may be powerful, but he who has mastered himself
is mightier still"

-Lao Tzu

_____

Dear Wealth Daily Reader,

As the Wealth Daily team at the east coast command office in Baltimore
sat around one computer watching, through live streaming video, Senators
grill big oil execs about their charitable contributions, I thought to
myself just how far the Internet has come from the days of dial-up.

In 1996, it took an hour to upload a picture of Sung Hi Lee. Today, it
takes an eye-blink.

It's about to get better.

WD's resident techie, Luke Burgess, is looking at the next generation of
Internet technology.

Something he's hot on - but it's not new - are optochips.

They were first introduced to the market in 2000. The euphoria over
optochips were tempered by the market bubble bursting that same year.

However, chances are your PC may be using one, as Intel is a believer in
the chips.

You see, optochips offer information-processing speeds that are upward
of 1000 times faster than speeds from modulators from the late 1990s.
The optochips, also known as polymeric electro-optic modulators,
transform electrical signals into optical signals at speeds as high as
100 Gbps.

New polymers replace standard lithium niobate in the electro-optic
modulators, which serve as a link between electronics and fiber-optic
equipment. New polymers are intended to bring about the development of
high-capacity devices with low noise and low power usage.

To give you an example of what this means, you'll be able to download a
2-hour movie within a half-a-second. That's the kind of speed we're
talking about.

There's a reason why I bring this up.

Yesterday's Senate hearing is a microcosm for what's currently
happening. and for what's about to happen.

While queen Barbara Boxer, the descendants of Mao, Wall Street, and
Joe-sixpack focus on the rising costs of energy, savvy investors are
beginning to - and quietly - take positions in technology companies.

Perhaps they're building positions for a renewed rally, or a new bull
market in technology stocks.

I'm not the only one recognizing the potential opportunity on the
horizon.

From the November Issue of Business 2.0, article titled "Tech's Big
Comeback":

There's a time-warp feel to some of what you see around 285 Hamilton --
the excitement, the energy, and, yes, the hype. But this is not the kind
of whistling-past-the-graveyard cheeriness of, say, early 2000.

It's not even the opportunity's-knocking-with-a-great-big-hammer feel of
1996, shortly after Netscape's historic IPO triggered the first Internet
boom.

What is on display in Palo Alto -- indeed, increasingly in all of the
nation's tech centers, from Seattle to Austin to New York--is the early
stage of a new technology boom of potentially unprecedented power and
durability.

That may sound absurd at a time when the country seems besieged by
ominous economic forces, from grinding wars to devastating floods to
runaway gasoline and heating bills.

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_____

But a growing body of evidence, both statistical and anecdotal, suggests
that tech is taking flight again. And this time, even some circumspect
observers of the tech scene believe, the industry could soar to greater
-- and more sustainable -- heights than ever before.

Signs of the renaissance are popping up everywhere. Venture capital is
flowing more profusely than it has since the late 1990s; money invested
in early-stage startups could top $1.5 billion this year, up 50 percent
from last year and almost double 2003's figure.

More significantly, the average seed investment, $4.4 million, is three
times what it was a year ago and larger than it was in 2000. That means
that VCs are valuing startups at higher levels than at the height of the
boom."

I may be premature, but I think we may be setting ourselves up for a
repeat of 1995, when on August 9, Netscape went IPO.

On that day, the Internet bull market was born. But it would take
another 3 years before the market became drunk with everything dot.com.

Take a look at a historical chart of the small cap index the Russell
2000:

After a bear market that lasted from 2000 through 2003, the Russell has
been in a major rally, rising 85% in value since 2003.

Three months ago, the Russell made an all-time record high.

Historically, small caps lead the market. They also outperform the
market because after rallying prior to the start of new bull market,
small caps will rise in sympathy with the other major indices.

Here's a comparison chart of the past 5 years:

I believe that next year, the other 3 indices, the Dow, the NASDAQ and
the S&P 500 will begin the first phase of a bull market. The 3 indices
may not reach all-time highs achieved in 2000, but I think we could see
those levels - and more - before the end of the decade.

Though WD is still bullish on energy and commodities in general, we
believe in diversifying into technology.

Having said that, we've recommended energy stocks that'll gain
significant capital appreciation in the coming years. Mike Schaefer
recently released his latest report Shock Proof: The Seven Sisters of
Natural Gas.

While yesterday's Senate hearing was going on, Andrew Liveris, president
and CEO of The Dow Chemical Company, testified today during a House
Appropriations joint sub-committee hearing on the impact of high and
volatile U.S. natural gas prices.

Representing Dow and the American Chemistry Council (ACC), Liveris urged
government action to address "one of the worst energy crises in American
history."

He was talking about natural gas.

I urge you to read Mike Schaefer's report on natural gas. He's been spot
on, predicting the current crisis way back in 1998.

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_____

Candela Update:

Back in the beginning of July I recommended Candela (NASDAQ:CLZR) for
immediate purchase at $10.50.

The company's share price was steadily flat until the end of August when
Candela's share price fell 12% after poor a fourth quarter earnings
report. But I still was bullish.

You see I believe in Candela's profit potential because although the
company has two or three major competitors, Candela manufactures the
most comprehensive and technologically sophisticated laser systems in
its industry. They've already installed over 7,000 laser systems in more
than 64 countries worldwide.

Other so-called stock analysts from various financial newsletters didn't
share my enthusiasm. But now they're whistling a different tune.

Last Tuesday Candela released their first quarter financial results. The
company's revenues grew 25% and net income grew 8%. Candela's gross
margins also shot up more than 50%, compared with 45.1% last year.

The share price has continued to increase since the release of this data
to $12.87 as of 11:30 today. That's an increase of over 22% since I
first recommended the company.

There are those who still like to poo-poo Candela. They claim that these
earnings are nothing to get excited about because it's only one quarter.

It's true that over the past two years, Candela has been experiencing
slower growth rates, except for occasional bumps in a quarter here and
there.

But there are a number of other developments that indicate good things
to come.

Candela just brought new products onto the market and is expanding into
China, a huge and currently untapped market.

Now this will increase costs, but Candela's healthy balance sheet should
have no problem meeting those needs and it could help pump in revenue.

On the home front Candela has recently signed on McKesson (NYSE:MCK) to
push its new pulsed dye lasers. Though this may cut into gross margins,
Candela's management team is confident that margins will remain in the
50% to 52% range for the full year.

And perhaps one of the more shareholder-friendly things Candela did over
their first fiscal quarter was to announce a share buyback program equal
to 10% of the company's outstanding stock over the next two years.

Historically the first quarter is usually the company's weakest. But
this time around Candela managed to reverse recent trends and post some
respectable numbers.

With the Candela's new products, new distributors, and new markets to
expand into, along with a shareholder-friendly stock buyback program the
right cards are in hand for Candela to resume its industry-leading role.

With a little consistency over the next quarter or two, Candela will be
back in the Wall Street spotlight.

Here are some recent highlights from Candela:

11/8/2005 - Candela entered into a long-tern exclusive agreement with
Ideal Image to supply the laser hair removal franchise with its
GentleLASE and GentleYAG lasers.

11/1/2005 - Candela reported record revenues and solid profits for the
first fiscal quarter. The company also initiated an open market share
buyback plan.

10/27/2005 - Candela introduced its new pulsed dye laser platform. These
new models offer flexible solutions for helping patients achieve better
looking skin.

10/24/2005 - Candela received approval from Chinese officials to sell
products throughout the people's republic of China and Hong Kong.

8/24/2005 - Candela and the University of California entered into a
mutually favorable license amendment for new cooling technology for the
company's lasers.

8/9/2005 - Candela announced an exclusive distribution agreement with
McKesson to sell the company's lasers and light-based products to family
practice markets.

- Luke Burgess

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_____

Seeing Green in Atlanta

It's roughly 3:00 in Atlanta right now...and I'm strategically perched
above the exposition floor at the 2005 International Green Build
Conference, witnessing a very anticlimactic case study in irony;
environmentalists and capitalists cohabitating in an effort to push the
agendas of both sides.

Of course, this should be no surprise to you.

We've been watching the same scenario unfold right in front of our eyes
this year with the renewable energies markets. Fortunately, many of you
have already staked your claim to these markets early - and continue to
do so in areas of renewable energy technology.

But today I'm here to tell you that, after meeting with some of the
leading architects and engineers in the Green Building industry this
morning over coffee - the ride for the Green Building market sector is
about to get interesting.

And when I say interesting, I mean profitable!

I have the raw data in front of me right now - and it seems to me that
no one is reading between the lines.

These companies, at the earliest stages of the game are profitable!

Next week, in my Green Chip Review, I'll share some of this data with
you. And more importantly, I'll show you how these numbers validate the
industry's profit potential - especially over the next two to three
years.

Yes, the Green Building movement is an environmentalists dream come
true. Energy and water conservation, recycled materials, reducing green
house gases, the list goes on and on.

And that's spectacular!

But there's a select group of publicly-traded companies downstairs from
me right now on the expo floor, completely overwhelmed by developers,
contractors and retail buyers with green intentions burning a hole
through their pockets.

And mark my words - we're getting a piece of that action!!!

Until Next Time,

Jeff Siegel

_____

Alpha-States

I received a number of e-mail responses to Monday's Waking Dragon ("Fast
Times at Pacific Rim High"), including ones from Canadians happy with
the way I addressed the trade situation between our two NHL-brother
countries.

I greatly appreciate criticism, both favorable and otherwise, and I
encourage all readers to respond when they feel the urge, to
sam@wealthdaily.net

Most of all, I am proud that the Waking Dragon is called "fair and
reasonable." That is what analysis should be. It is our job here at
Wealth Daily to provide you with information that shows both sides of
every story, and your job to use that knowledge to make sound
investments. However, some details are bound to fall by the wayside in
the course of distilling information, no matter how earnest the effort.

Here, we revisit the Canada-USA-China trade triangle with another
metaphor for international economics and statecraft.

Dogs.

Marking Territory

My first family dog was Buck, a big mutt with a face like a German
Shepherd and a temperament like a Labrador. I remember times when Buck
did his business inside, and he was punished. But when my parents and I
took Buck for walks around our quiet Kansas City suburb, we encouraged
him to unload on any bush or tree he felt needed watering.

Buck obliged.

President Hu Jintao of China has visited 29 countries and 2 major
international assemblies since taking office in March of 2003.

Now, out of both fear and respect I will not compare the Chinese leader
to my childhood pet, but both have made the same statement through their
actions: "I was here, and now you know it."

A Barking Dog Doesn't Always Want a Fight

The marking of territory is not necessarily an overture to combat. Buck
was a tame dog, and if another dog sniffed around an area he marked, he
wouldn't fight right away. Rather, dogs sniff each other out to get a
sense of each other's intentions, and usually avoid full-blown fights.
Just so, not every foreign visit by a statesman means all the others
should put their dukes up. Alliances are built with the goal of avoiding
war, and in modern times those partnerships are founded on economic
bases. That is what China is doing, with the knowledge that the more
heavily linked China is to Country X, the less likely Country X is to
act hastily against China.

The most obvious example of this effect is the United States' continuing
One-China policy. Reiterated the other day by President Bush, the
One-China policy is the mechanism by which China tests the international
political waters regarding its relationship to Taiwan.

Just last week, Senegal officially closed its embassy in Taipei, in
favor of strengthening relations with Beijing. Beijing refuses to
establish full diplomatic relations with any country that has an embassy
in Taiwan, as foreign acknowledgement of Taiwan as a sovereign entity is
contrary to the official Chinese assertion that Taiwan is part of the
People's Republic of China.

But even though we do not recognize Taiwan's independence officially, we
facilitate their maintenance of security infrastructure in the name of
"balance of power" across the Taiwan Straits.

Despite its assertive One-China policy, China has not started a war with
Taiwan. It is my opinion that precisely because it has securely asserted
itself, it will not wage all-out war over the former Formosa.

Just because the dog is big and loud doesn't mean it wants to rumble.
The situation might actually be opposite.

Labrador Homeland

As I alluded to above, the Labrador is a large, imposing dog. But
Labradors are also known for their mild disposition. Named after the
area of Newfoundland, Canada where they were originally bred, Labradors
are like most Canadians: they're well-suited to cold, good with
children, and they drink lots of Molson. Well, maybe not the last part.

Labradors will bark if they need to, and bite only as a last resort.

Canada is not going to stop selling oil to the United States. It's
barking loud because we're playing rough and Canada wants to regain some
control over the situation.

Indeed, Alberta's Energy Minister told Canada's Embassy magazine that he
objects to the Ottawa government's use of Alberta oil as a pawn in the
softwood lumber dispute. According to Minister Greg Melchin, "the
federal government receives 43 percent of revenue from the oil sands;
Alberta receives 36 percent."

That revenue includes one million barrels per day of exports to the
U.S., and Canada won't be giving that trade up anytime soon.

For Canadian producers for whom costs far outweigh the benefits of
shipping oil to China, California is a more local and immediate option.

BUT, the seaborne route from Canada to China is also short, in Chinese
terms.

The Middle East is farther away and, as we well know, security concerns
are factored into shipping costs from the turbulent Gulf petrocracies.
So it is quite possible that Chinese buyers will make it worthwhile for
producers who would otherwise ship to California to turn to the Pacific
first.

False Teeth?

It remains to be seen whether the United States will assume a more
conciliatory attitude towards Canada in the lumber dispute. It is very
possible that Prime Minister Paul Martin's strong stance on the issue is
just that-a stance, with no forthcoming action.

However, the U.S. government should consider this a lesson in the game
we invented. Throughout the entire Cold War, then in the 90s with NAFTA,
and countless other trade alliances we have established over the years,
we have insisted that free markets would be the rails on which the train
to the future would ride. "Come on board," we said.

But then two of our partners get a little chutzpah and start working
around us, and we wonder why. We are now reaping the seed of
international trade that we ourselves have sown.

We should thank our lucky stars that Canada is unleashing a black-gold
bounty just up the road. It behooves neither Canada nor us for the
relationship to break off entirely, but preferential treatment may
become a thing of the past if grievances are not addressed properly.

- Sam Hopkins