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This lists some of the questions that may come up in the context of the
project. You may also find answers to your questions in my emails
relating to the project, which are listed here.
I. Corporate Governance Analysis
• To understand the relationship between the firm and society try answering the
following questions:
1. Societal Constraints
o Does the firm have a particularly good or bad reputation as a corporate
citizen?
o If it does, how has it earned this reputation?
o If the firm has been a recent target of social criticism, how has it
responded?
• To understand who the average and marginal investors in the firm are, try
answering the following questions:
• To understand the risk profile of the company, estimate risk parameters and the
hurdle rates for the firm, try answering the following questions:
1. Estimating Historical Risk Parameters (Top Down Betas)
• What is the intercept of the regression? What does it tell you about the
performance of this company's stock during the period of the regression?
• What is the slope of the regression?
o What does it tell you about the risk of the stock?
o How precise is this estimate of risk? (Provide a range for the estimate.)
• What portion of this firm's risk can be attributed to market factors? What portion
to firm-specific factors? Why is this important?
• How much of the ìriskî for this firm is due to business factors? How much of it is
due to financial leverage?
• To analyze the quality of the firm's existing projects and get a sense of the quality
of future projects, try answering the following questions:
• To analyze the existing financial mix of the firm and to assess, from a qualitative
trade off between the benefits and the costs of debt, whether the firm has too
much or too little debt, try answering the following questions:
To answer these questions, you might want to look at the following
1. Benefits of Debt
o What marginal tax rate does this firm face and how does this measure up
to the marginal tax rates of other firms? Are there other tax deductions that
this company has (like depreciation) to reduce the tax bite?
o Does this company have high free cash flows (for eg. EBITDA/Firm
Value)? Has it taken and does it continue to have good investment
projects? How responsive are managers to stockholders? (Will there be an
advantage to using debt in this firm as a way of keeping managers in line
or do other (cheaper) mechanisms exist?)
2. Costs of Debt
o How high are the current cash flows of the firm (to service the debt) and
how stable are these cash flows? (Look at the variability in the operating
income over time)
o How easy is it for bondholders to observe what equity investors are doing?
Are the assets tangible or intangible? If not, what are the costs in terms of
monitoring stockholders or in terms of bond covenants?
o How well can this firm forecast its future investment opportunities and
needs? How much does it value flexibility?
• To assess the optimal financing mix of your firm, try the following questions:
• To analyze whether the firm has too much or too little debt relative to the sector
and the market, try the following :
1. Relative Analysis
o Relative to the sector to which this firm belongs, does it have too much or
too little in debt? (Do a regression, if necessary)
o Relative to the rest of the firms in the market, does it have too much or too
little in debt? (Use the market regression, if necessary)
• To understand whether your firm should move to its optimal gradually or quickly,
and whether it should take projects or alter its existing mix, try answering the
following questions:
• To analyze what kind of financing the firm should use to move to its optimal, try
the following:
1. Financing Type
o How sensitive has this firm's value been to changes in macro economic
variables such as interest rates, currency movements, inflation and the
economy?
o How sensitive has this firm's operating income been to changes in the
same variables?
o How sensitive is the sector's value and operating income to the same
variables?
o What do the answers to the last 3 questions tell you about the kind of
financing that this firm should use?
• To analyze how much the firm has returned to stockholders in the past, and to
assess, from a qualitative trade off, whether it should return more or less, try the
following:
• To assess how much the firm could have returned to stockholders and whether it
should be returning more or less, try the following:
1. Affordable Dividends
o What were the free cash flows to equity that this firm had over the last few
years?
o How much cash did the firm actually return to its owners over the last few
years?
o What is the current cash balance for this firm?
2. Management Trust
o How well have the managers of the firm picked investments, historically?
(Look at the investment return section)
o Is there any reason to believe that future investments of this firm will be
different from the historical record?
3. Changing Dividend Policy
o Given the relationship between dividends and free cash flows to equity,
and the trust you have in the management of this firm, would you change
this firm's dividend policy?
• To measure whether your company is paying too much or too little relative to the
sector and the market, try the following:
X. Valuation
• To pick the right model, estimate inputs and value your firm, try the following:
Telecommunications Infrastructure
DEFINITION: Organizations, personnel, procedures, facilities and networks employed to transmit and receive
information by electrical or electronic means.
Broadband Infrastructure(Broadband in
telecommunications is a term which refers to a signaling
method which includes or handles a relatively wide
range of frequencies which may be divided into
channels or frequency bins)
Current
Company Perspective TierMomentum Status Vision
2nd
ADTRAN Neutral/Positive Neutral/Positive EstablishedNeutral/Positive
Tier
1st
Alcatel-Lucent Positive Positive Mature Positive
Tier
2nd
Calix Positive Positive EstablishedPositive
Tier
1st
Cisco Positive Positive Mature Positive
Tier
2nd
ECI Telecom Positive Positive EstablishedPositive
Tier
1st
Ericsson Positive Neutral/Positive EstablishedPositive
Tier
1st
Huawei Positive Positive EstablishedPositive
Tier
Juniper 2nd
Neutral/Positive Neutral/Positive EstablishedPositive
Networks Tier
2nd
KEYMILE Positive Neutral/Positive EstablishedPositive
Tier
2nd
Motorola Positive Positive Mature Positive
Tier
2nd
NEC Neutral Neutral EstablishedNeutral
Tier
Nokia Siemens 1st
Positive Positive EstablishedPositive
Networks Tier
2nd
Nortel Negative/Neutral Negative/NeutralEstablishedNegative/Neutral
Tier
Occam 3rd
Neutral Neutral Emerging Neutral/Positive
Networks Tier
Siemens 1st
Positive Positive EstablishedPositive
Communications Tier
2nd
Tellabs Positive Positive EstablishedPositive
Tier
2nd
UTStarcom Neutral Neutral Emerging Neutral/Positive
Tier
2nd
Zhone Positive Neutral/Positive EstablishedPositive
Tier
Optical Infrastructure
Current
Company Perspective Tier Momentum Status Vision
ADVA Optical 3rd
Positive Neutral/Positive EstablishedPositive
Networking Tier
1st
Alcatel-Lucent Very Positive Positive Mature Positive
Tier
2nd
Ciena Positive Positive EstablishedNeutral/Positive
Tier
2nd
Cisco Neutral/Positive Neutral Emerging Neutral
Tier
2nd
ECI Telecom Neutral/Positive Neutral/Positive EstablishedPositive
Tier
1st
Ericsson Neutral/Positive Neutral/Positive Mature Positive
Tier
1st
Fujitsu Positive Positive Mature Neutral/Positive
Tier
1st
Huawei Positive Very Positive EstablishedNeutral
Tier
2nd
Infinera Positive Very Positive Emerging Positive
Tier
2nd
NEC Neutral Negative/NeutralEstablishedNegative/Neutral
Tier
Nokia Siemens Neutral/Positive 2nd Neutral/Positive Mature Neutral/Positive
Networks Tier
1st
Nortel Neutral/Positive Neutral/Positive Mature Neutral/Positive
Tier
Siemens 1st
Neutral/Positive Neutral Mature Positive
Communications Tier
1st
Tellabs Neutral/Positive Neutral/Positive EstablishedPositive
Tier
3rd
Transmode Positive Positive Emerging Neutral/Positive
Tier
3rd
ZTE Neutral Neutral/Positive Emerging Negative/Neutral
Tier
Wireless Infrastructure
Current
Company Perspective TierMomentum Status Vision
1st
Alcatel-Lucent Positive Positive Mature Positive
Tier
2nd
Alvarion Neutral/Positive Neutral/Positive EstablishedNegative/Neutral
Tier
1st
Cisco Positive Neutral/Positive EstablishedNeutral/Positive
Tier
1st
Ericsson Very Positive Very Positive Mature Positive
Tier
2nd
Huawei Neutral/Positive Neutral/Positive EstablishedNeutral
Tier
Juniper
2nd
Networks Negative/Neutral Negative/NeutralEstablishedNegative/Neutral
Tier
(Quickview)
3rd
LG Electronics Negative Negative EstablishedNegative
Tier
1st
Motorola Neutral/Positive Neutral Mature Neutral/Positive
Tier
1st
NEC Neutral/Positive Neutral/Positive Mature Negative
Tier
Nokia Siemens 1st
Positive Positive Mature Positive
Networks Tier
1st
Nortel Neutral Neutral/Positive Mature Neutral
Tier
2nd
Samsung Negative/Neutral Negative/NeutralEstablishedNeutral/Positive
Tier
Siemens 1st
Positive Neutral/Positive Mature Positive
Communications Tier
Starent 1st
Positive Positive Mature Positive
Networks Tier
2nd
UTStarcom Negative Negative Emerging Neutral
Tier
2nd
ZTE Negative/Neutral Negative/NeutralEmerging Negative/Neutral
Tier
The worldwide market for metro Ethernet equipment, which reached $3.8 billion in 2004, should double in the
following four years, reaching $7.6 billion in 2008, according to data released today by Infonetics Research.
The percentage of metro networking capital spent on metro Ethernet equipment will grow each year for the next
ten years, Infonetics said, and Ethernet equipment revenue should grow in double digits through at least 2008. The
research firm also expects metro Ethernet ports to increase 433% between 2004 and 2008.
As the Metro Ethernet Forum further develops standards to clearly define carrier-class Ethernet services, the
market for so-called "carrier Ethernet" switches and routers will grow to $2.7 billion by 2008, representing 35% of
the metro Ethernet equipment market, Infonetics said. In 2004, carrier Ethernet revenue accounted for only 2% of
the metro Ethernet market, with $61 million in worldwide revenue.
Nortel Networks leads the global market for both Ethernet-over-Sonet/SDH equipment and Ethernet over
wavelength-division multiplexing (WDM), Infonetics added. Alcatel is second in the Ethernet-over-Sonet market,
Adva Optical Networking is second in Ethernet-over-WDM, and Cisco Systems is a close third in both markets.
The biggest geographic market for metro Ethernet equipment in 2004 was Asia/Pacific, which contributed 39% of
the market's revenue last year. North America contributed 35%; Europe, the Middle East and Africa represented
21% and Central and Latin America accounted for 5%.