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TWST: Let’s start off with what’s been going on most recently. Who are the major players and what’s the situation as it stands right now?

Mr. Brau: The big news is the Ericsson (ERI.MI) second quarter. You’ve got four large telecommunications equipment plays plus you have Siemens (723610.FX), which is a conglomerate but has a major telecommunications equipment company in there, and they’re active in a lot of different areas. Lots of stuff is going on in wireless; it’s going on in optical and it’s going on in ATM and IP.

TWST: What have been the biggest implications of Ericsson’s announcements?

Mr. Brau: It used to be that there were three leading mobile phone suppliers all with, I won’t say totally comparable positions, but they were all competitive with each other and now, essentially, you have Nokia (870737.FX) way out in the lead, Motorola (853936.F) a distant second, and Ericsson an even more distant third. I think that’s what the Ericsson second quarter more or less confirmed, that it’s not going to ever make it in mobile phones.

TWST: Are there any other specifically European stocks that you’d like to highlight?

Mr. Brau: Alcatel (13000.PA) has had an incredibly good run lately because of the the European investors, particularly the French, always want to love this stock if they have an excuse to. For many years, Alcatel gave them no excuse to love them. Now, that they’re doing reasonably well, the multiple’s gone way up. The other thing is that they have an optical components business, and everybody and his brother is trying to spin off his optical components business and say, “Well, it’s worth 100 times revenues,” and Alcatel has got an optical components business which they told analysts would have $250 million to $300 million in sales this year. So you take 100 times revenues, you get $25 billion to $30 billion, that’s not bad. Obviously, you can tell what I think of these valuations. I think that’s been one of the areas that people have been focusing on. I don’t know how long that hot streak will last for optical components. Alcatel is having a very good year. It’s not at all a mobile play, it’s mostly got a couple of areas that are growing very well, like the ADSL, mostly in the Unites States, but really globally they’re clearly the leading supplier there. In submarine networks, that’s more or less a duopoly and them and Tyco have essentially split most of the non-Japanese market, and the demand is greater than supply, so they are making very good margins; they have very good top line growth. They bought Newbridge at a time when people hated the stock but Newbridge was sort of in the process of turning around. They bought DSC a couple of years ago, also at a time when the stock was depressed and things are going much better there. So, I’d say in general, the optical networking part of Alcatel, including SDH and Sonet, is growing 25% and the submarines business is growing faster than that. They also have fiberoptic cables, which is growing faster and is very profitable. They have a number of businesses there which are making decent margins and growing well. They don’t have a mobile business, which is one of their big gaps and, in my view, they’ll never have a big mobile business. They do have a mobile phone business which is actually making some money. At least it did in the first quarter. It’s not making a huge amount, but it used to lose a lot of money, so it was a big turn around for them. Overall, for the first time in really eight years - I’ve covered the company for eight years now – they have a real earnings growth story that extends out more than one year. So that’s why I think people have been piling into the stock; that, possibly, plus the expectation that they’ll do something with optical components and spin it out for a ridiculous amount of money.