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The following is DD from MicrocapInvestor2000:
Based in Quakertown, Pennsylvania, AM Communications is a fully reporting company founded in 1974. For the past decade, AM has been a pioneer in developing network monitoring systems for broadband communications networks. AM has applied its technical strengths in RF communications, microprocessor controlled circuits and application software to produce a proprietary system that allows CATV operators and broadband access providers to monitor the performance and operation of the complete broadband transmission network, thereby enhancing network reliability and optimizing performance. The Company's OmniStat System is an advanced status monitoring system for broadband networks. The OmniStat System represents the second generation of monitoring technology built on AM's legacy technical monitoring system platform. OmniStat is a total integrated system comprised of hardware and software products designed to address the evolving need for standards based network management architectures.
Thus AM Communications is a perfect picks and shovels company because they make the very products that broadband providers will come to rely on to insure that their networks are functioning properly. In fact, the company reiterated the importance and demand for their products, stating: ?The Company's products are experiencing a significant increase in demand as cable operators and now the major telco's recognize the opportunity to expand and provide additional video, telephony, and data services. These services will be provided over a significantly improved "Information Highway" consisting of broadband distribution systems. These systems are being built today and include sophisticated two way communication systems enabling such new services as Video on Demand, Telephone over Cable, Internet Access and others. AM's monitoring products provide intelligence to these distribution systems enabling the operator to keep the system in control and improve reliability, something we call providing "Guardrails for the Information Superhighway." And the building demand is starting to show on the bottom line.
Increasing Revenue:
Revenues for the third quarter of fiscal 2000 were $2.7 million, up 27% compared to $2.1 million reported for the third quarter of fiscal 1999.
Decreasing Losses:
The Company reported a net loss of $401,000 during the recent quarter, compared to a net loss of $689,000 in the comparable period in fiscal 1999.
Improved Outlook:
Commenting on the results, Keith D. Schneck, President said, ``We continue to see improved operating results with the introduction of new products, expanded selling efforts, and the addition of new OEM partners. Our selling activities for the third quarter reflected a dramatic increase in bookings as backlog expanded to $3.9 million, up 86% over the backlog reported just three months ago. Our operating results for the recent third quarter reflected a loss of $401,000 which included an inventory charge of $450,000 booked during the quarter as the Company prepared to transition to a complete outsource manufacturing strategy beginning January, 2000. Excluding this charge, the results for the third quarter would have been an operating profit.?
Key Plans to improve profitability:
``Effective January 1, 2000 we began our next phase of transformation into a technology systems provider. We entered into an outsourcing arrangement with a NeST related company, that provides complete turn-key outsourcing services for electronic products. Nestronics is owned and controlled by the Company's Chairman, Mr. Javad K. Hassan. Under the terms of the arrangement, the Company's manufacturing staff and inventory were transferred to Nestronics. In return, the Company received a commitment from Nestronics to manage and supply all the Company's manufacturing requirements for a three year period under an agreed upon pricing formula. The amount of inventory transferred will be credited against the value of such purchases made by the Company. We believe that this outsourcing strategy will result in more efficient costing of the Company's products and relieve its operation from the risk of incurring manufacturing inefficiencies which have impacted results in the past,' commented Mr. Schneck.
Capturing world markets:
In December, the company announced an OEM agreement with BARCO, a major European provider of head-end, hub and network management systems. The agreement calls for BARCO to embed key components of AM's OmniStat(TM) Network Management solution into its ROSA network management system.
Key Partners/Customers:
Several of the most respected suppliers of broadband communications equipment have incorporated the Company's status monitoring products under their own private label; such as AT&T, General Instrument, Augat Communications, Philips and Hewlett-Packard and Lucent. In fact, the company?s AM OmniVU software provides standard interfaces to other systems through relationships established with industry leaders such as Hewlett-Packard, Arrowsmith, OSI, and others. The Company sells directly to cable operators and telco's including Cablevision, Comcast, TCI, Time Warner, GTE, Sprint, Pacific Bell, and others. Additionally, the Company has OEM sales relationships with the major equipment providers and integrators including AT&T, General Instrument, ADC, Philips, and others. The Company also sells internationally through its OEM partners and sales representatives in the Pacific Rim and Europe. Thus AM communication?s products have been indorsed by some of the most prestigious leading names in the cable, phone and internet industry. In fact, John Koval, Vice President of marketing of General Instrument repeated this message, stating: GI's decision to go with AM was based upon several critical factors: first, AM's open product architecture encourages active participation by the HFC equipment manufacturers and third party software vendors. Second, the telecommunications industry is rapidly becoming a multi-vendor environment where network equipment must be managed as part of a single, cost effective solution. AM's practice of cooperative engineering is an essential ingredient in making this a reality. Third, by devising a direct-connect solution with AM that obviates the need for proxy agents and additional computing hardware, management of Omnistar becomes practical and affordable,' continued Koval. Thus, AM communications is also capitalizing on the ?friends and backers theory? as well.
The market is beginning to take notice:
The chart below illustrates the fact that there wasn?t much interest in AM Communications until late January, with the shares resting around .40. In fact, the 52 week low is .16. The stock closed on February 18, 2000 at 1.35, with a 52 week high of 1.80, set on February 18, 2000:
As you can see, volume is steadily increasing, and the stock price has enjoyed a nice run recently, culminating with a large rise on Friday, on no news. Given this recent rise, one might be tempted to wait for a pullback before buying. We think that would be a mistake and see much greater gains ahead for this issue throughout 2000.
Still Markedly Undervalued:
There are several companies involved in the same industry as AM Communications, but none trades so cheaply. As a comparison, Digital Lightwave Inc (DIGL)., a company who designs, develops, markets and supports diagnostic products that monitor, maintain and manage fiber optic-based networks sports a hefty market cap of 1.63 billion, whereas AMCM trades at a cap of only 43.5 million. To match DIGL?s cap, AMCM would need to trade at roughly 50 « dollars per share. Of course we don?t think that this valuation is reasonable. DIGL has much greater revenue and turned a profit over the last nine months. However, we feel that it is reasonable to award AMCM a market cap of roughly 20% that DIGL enjoys, thus justifying a share price of roughly 10 dollars per share in the next six months, or roughly 650% above its closing price of 1.35 on Friday February 18, 2000.
Final Analysis:
AM Communications is a growing company in a very hot field. They are a classic ?picks and shovels? as well as ?friends and backers? company who is poised to capitalize on the rapid growth that is expected to propel their industry to new heights in the year 2000. We repeat our price target of 10/ share within the next six months.
Company Information:
Website:
amcomm.com
(Of note is that the company is completely re-designing their site and should have a new one up soon)
100 Commerce Blvd.
Quakertown, PA 18951
Phone: (215) 538-8700
Fax: (215) 538-8779
Email: sales@amcomm.com
Employees as of 4/99: 50
Company Officers:
Keith D. Schneck, CEO/Pres./CFO
Javad K. Hassan, Chmn
Joseph D. Rocci, VP
Michael L. Quelly, VP
Harry J. Tankin, VP.
Market Capitalization $43.5M
Shares Outstanding 32.3M
Float 11.0M
Symbol:AMCM
Price: 1.35 (As of February 18, 2000)
Target: 10
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