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Cruttenden Roth Conference: A Roth by Any Other Name...

Plus, SDLI's prospects still smell as sweet.

LAGUNA NIGUEL, Calif. -- Cruttenden Roth, the small-cap firm of Southern California infamy, is no more. This week, CEO Byron Roth announced the firm's new name: Roth Capital Partners. A press release announcing the change came as attendees walked between the raindrops into the firm's annual conference this week at the palatial Ritz-Carlton Hotel. Of course, few saw the release and most probably would have been surprised to find out that the Cruttenden conference was no longer the Cruttenden conference.

Roth, 37, was more willing to discuss the importance of adding Capital Partners to the name of a 90% employee-owned firm (

Fidelity National Financial

(FNF) - Get Fidelity National Financial, Inc. - FNF Group Report

still owns 10%). And he was anxious to discuss the firm's new signature mark of "venture banking" -- a tagline that was emblazoned wherever the firm could print it.

But what he didn't want to talk about was the jettisoning of the name Cruttenden. Walter Cruttenden III founded the firm but bolted last year to create the competing investment bank



This firm, under any name, has a unique role in the financial markets. As the underwriting world has consolidated and gone after big-money deals, Cruttenden Roth has resisted that temptation. Today under Roth, the firm has solidified its role as an underwriter for small companies that get little attention now that independents

Montgomery Securities


Robertson Stephens


Hambrecht & Quist

have merged up and out of this space. Roth has kept the firm focused on little companies and carved out a defensible niche.

This week's name change, really, was a long time coming.

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Roth has transformed the firm in his own image since joining as a hard-charging, 29-year-old Iowan (no, "hard-charging Iowan" is not an oxymoron). Indeed, over the course of this conference, it has been striking just how many CEOs and investors say they're here as "friends of Byron."

If these small-caps keep rising, and conference continues to be this spectacular, Roth's group of friends are sure to grow.

How High Can SDL Go?

Cliff diving can't be any more frightening than the chart of

SDL Industries


. The company, a maker of semiconductor opto-electronic integrated circuits and high-power semiconductor lasers, has seen its shares rise from 27 1/4 a year ago to close today at 361 7/8. My calculator tells me that's 1,228% growth, but such an increase seems unfathomable. SDLI has a frightening P/E ratio of 450.

And yet some trends point toward further growth of SDL and of its competitor

JDS Uniphase


. "The biggest misconception with these stocks is that people are overconcerned with the valuations," says Roth Capital Partners analyst Dave Kang. (The firm has not done any underwriting for either company.) "But they're not taking a close enough look at the strong demand for these products."

Basically, Kang's research points out, once again, that demand for bandwidth is growing even faster than bandwidth itself. So companies like SDL and JDS Uniphase, with their wavelength division multiplexing, or WDM, products that pump up bandwidth, will create even more in demand. Kang expects sales of WDM components to increase at an annual rate of 27% to reach $10 billion in 2002, from $3.8 billion in 1998.

Michael Foster, SDL's CFO, says that his company will grow even faster. Its revenue has been growing 23% each


, but he says revenue growth from fiber optics has been more like 44%. Fiber optics is becoming a bigger part of SDL's product mix, so Foster says the revenue will begin to grow even faster, with margins improving as well.

Chief among those drivers are SDL's sub-marine products, so-called "pump modules" that literally pump more data into undersea fiber optic lines. "The margins are extraordinarily high in the undersea product," says Foster, "if you can


enough product."

Thus far, Foster says the company has been unable to fill its flood of orders. But at this conference, he announced that the company would add a third shift in its San Jose, Calif., plant. That move, combined with some automation yields, will dramatically increase the number of pump modules the company is able to produce. "My chief operating officer says we'll be able to get up to 200,000 units a quarter," he says, "which is far in excess of any orders we've seen so far."

He also says, not surprisingly, that the surging stock price has been quite a boon for the company internally. "Employee retention might be a problem in the rest of Silicon Valley, but not with us," says Foster. "Other than a few new cars in the parking lot, there haven't been many changes."

The Clap(s)

It's the last thing you might expect at a small- and micro-cap conference: After so many of the presentations, there is a burst of applause. Understand this appreciation isn't typical here. These are small-cap companies -- either crummy stocks, fallen angels or undiscovered gems.

But at this conference -- indeed, in this market -- almost any stock can be a winner. Even the most fledgling of micro-caps.

"It was bad enough when earnings didn't mean anything anymore," lamented one short-seller. "But now revenue doesn't even mean anything. It's not a joke. Some of these biotech companies come out and say they have a cure for cancer -- no proof, no revenues, of course no earnings -- and the stocks take off on the announcement."

Cory Johnson files weekly from's San Francisco Bureau. In keeping with TSC's editorial policy, he neither owns nor shorts individual stocks, although he owns shares of He also doesn't invest in hedge funds or other private investment partnerships. Johnson welcomes your feedback at

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