[Dain Bosworth on AWRE:]
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ú Proprietary, Non-standardized Technology. Aware's DWMT (Discrete Wavelet Multitone modulation) technology has not been standardized, but it is compatible with ANSI's DMT standard. As a DMT-compatible vendor, Aware can ride a wave of pro-DMT sentiment among carriers that may want an alternative to the standardized technology ****which is largely controlled by Amati Communications Corp.**** It is too early to judge which---if any---of the DMT variants will ultimately win out.
ú Pursuing Alliances and CLEC Customers. Aware has reached chipset agreements with Analog Devices Inc. and a product development agreement with DSC Communications Corp. The company is also pursuing customers among Competitive Local Access Providers and Internet Service Providers intent on battling with established local telephone companies for high-bandwidth revenues.
ú Industry Uncertainties Now Dominate. Before we can recommend purchasing the stocks of Aware of other ADSL vendors, we need more evidence that key technology development and market acceptance milestones have been met. This sort of progress, in turn, should yield earnings estimates and price targets in which we can place enough confidence to justify Buy recommendations.
Summary and Recommendation
Aware Inc.'s proprietary, non-standard DWMT form of ADSL is a key competitor to Amati Communication's standard-setting DMT technology. The two companies---whose equipment is compatible---are prusuing similar business strategies, hoping to forge alliances with large systems integrators to penetrate carrier markets. Aware is somewhat disadvantaged in offering a non-standardized form of DMT, but at this early stage in the ADSL industry's development we will watch what actual customers do before making definitive technology judgments.
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Valuation
In the valuation section of our main report, we note that Aware, along with Amati, is relatively undervalued under what we call a "starry-eyed" optimistic ADSL deployment scenario. Upside from Aware's current stock price, therefore, would represent a belief by investors that the optimistic scenario has a better chance of coming true than is now generally believed, and that Aware can capture a significant market share.
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