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I posted this reply to someone's message on the GX board and thought it might be of interest to people on the TCM board:

GX also has an undersea cable laying operation which they own. GX lays its own cables. I don't know about manufacturing. What things does TyCom manufacture? Do they make cable? I doubt it.

You're quite right regarding Global Crossing's cable maintance and installation operation (named Global Marine Systems). They have about 20 ships of various design that they leased out or use for their own subsea cable construction and maintenance projects.

You are incorrect, however, regarding TyCom's manufacturing and installation capability:
TyCom has approximately 40% of the world's subsea fiber optic cable manufacturing capacity. Some background: Tyco bought what is now TyCom from AT&T back in the mid-90s. At that time I think the unit was called AT&T Submarine Systems Installation (SSI). In any case, the unit was combined with Tyco's own cable manufacturing capability to form what is now TyCom Ltd. From SEC filings, the company controls somewhere around 60,000 km/yr worth of cable manufacturing capacity. So as you can see, this is a capability that Global Crossing lacks.

Global Crossing focuses on operations instead of manufacturing and offers a combined terrestrial/subsea global telecommunications solution. TyCom, on the other hand, is an integrated manufacturing / installation / operations company with a focus on global IRU and fiber pair sales, but only on subsea routes. They are not terrestrially focused. There's a rumor that this will change in the future, however, they're expertise is on the subsea portion of the bandwidth equation. This is another facet where Global Crossing is much different than TyCom. Global Crossing focuses on value-added retail sales. TyCom is more of a wholesale non-differentiated product seller. They're bet is on superior gross margins due to their unique integrated manufacturing base.

TyCom built approximately half of all subsea cables in existence. Their primary competitor is Alcatel, which built the majority of the other half of cables. The third, and distant, competitor is KDD, according to the propaganda I've read.

Personally, I'd feel more comfortable sinking money into TCM than in GX. The reasons are as follows:

1) TyCom has a much lower level of debt than Global Crossing. Global Crossing carries with it significant financial distress risk if it misses numbers and requires additional capital.

2) If all else fails and the world market for subsea IRUs goes bust, TyCom still has its manufacturing and installation business to fall back on. As I said before, this business is probably worth $11 or $12 per share on its own. I arrived at this value by looking at the company's reported net income before it diversified into cable operations (in the SEC filings) and slapping a slightly below market PE multiple on it. Not scientific, but effective.

3) TyCom is supported by the mother ship: Tyco. The parent company is an implicit guarantor of TyCom's debt, if for no other reason than Tyco is TyCom's biggest creditor (a la the strategy GE uses with its subsidiaries).

Thoughts on this view would be appreciated,

N.
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Nickolai,

Good post. I fully agree that TCM is the better investment for my cash too. I think that the fact that TYC is the 800# gorilla behind TCM helps me the think that the undersea operations will suceed. I think that at it's current value TCM poses a respectable value. I'm personally holding out for the $10/share purchase. But I'm planning on picking up more before it heads northward.

PK
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I posted this message with some of my (bearish) views on Global Crossing versus TyCom

NicolaiNJ,

Yes, everyone is entitled to their opinion, I am curious however why you would choose to go into such promotion of TyCom and Tyco on the GX board. No answer is need, however… I thought I would return the thoughtful enlightenment and post a copy of my opinion on the TCM board, all in the vein of bipartisan cooperation and the never ending quest for knowledge.

TCM has a book value of $4.33, sales of 2.43B, and a market cap of 6B, with a share price of $11.56.

GX has a book value of $14.10, sales of 3.6B and a market cap of 12B, with a share price of $14.50.

This is the opening paragraph from the FACT sheet from the TyCom Global network page on their website, the bolding is mine:

The Tycom Global Network (TGN) is PLANNED to be the most extensive and technology advanced undersea fiber optic network in the world. The TGN system WILL BE BUILT in phases over ten years, based on future requirement of global and regional demand… Phase 1 of the buildout is now underway, and is ecpected to be completed and ready for service (RFS) by the third quarter of 2002.

Translation: The network doesn't exist. (and their ain't no money to build it). The GX network is about 85% complete and 100% fully funded.

Given the two sales numbers I would put forth the opinion that those “deal makers” you were quick to hold up haven't, in comparison to TCM, done that badly at leading the sales efforts for GX . I wonder why that is? Maybe the GX sales team has a real network to sell capacity on?

I went looking for any cable laying projects that TCM is currently physically doing. The best I could come up with was a November 2000 release, a snippet is pulled below. Kinda interesting what became of the last hunk of fiber they put on the ocean floor hugh?


TYCOM DELIVERS WORLD'S FIRST 10-Gb/s 32-WAVELENGTH UNDERSEA SYSTEM

Pembroke, Bermuda, November 30, 2000 -- TyCom Ltd. (NYSE: TCM; BSX: TCM) today announced that it has installed the world's first 10-Gb/s 32-wavelength undersea fiber optic system. The end-to-end 10-Gb/s system, delivered to Global Crossing, utilizes next-generation components such as high-performance optical terminal equipment, dense wavelength division multiplexing (DWDM) equipment, line amplifiers, and wavelength termination equipment. The system, Pan American Crossing, is a 3-fiber pair cable linking California, Mexico, Panama, Venezuela and St. Croix and will ultimately provide near-terabit (960-Gb/s) capacity.



Yes, your comments are indeed thought provoking….


Cheers,

Robert


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