Talking Telecoms: The Last Good Play for Telecom Investment?
November 17, 1999 3:30 PM EST
By Casey Freymuth
Columnist
The reality of the telecom sector lately is that consolidation is quickly eliminating opportunities to invest in leading service providers. That's why the wise investor should look to the telecom "enablers" for more bang for their buck.
Enablers are those companies that create the hardware or proprietary software that enable communications to happen, like Qualcomm (QCOM : Nasdaq) or Nokia (NOK : Nasdaq ADR), as opposed to service providers like AT&T (T : NYSE) or GTE (GTE : NYSE), which sell the end-user the communication capability.
The chief argument for investing in telecom enablers instead of service providers is that enablers can capitalize on industry growth regardless of the winner at the consumer (service) level. Further, wireless-focused enablers can take advantage of growth in the sector independent of which types of firms are providing end user services.
And as industry consolidation is bringing the infamous "one stop shop" closer to reality, an equally powerful argument for investment in enablers is surfacing - enablers are becoming the best, and sometimes only, vehicles for capitalizing on intrasector or subsector growth.
This marketplace reality is heavily influencing the flow of investment dollars in the telecoms sector. In a recent listing of the top new buys of the country's best-performing mutual funds, 12 of the 14 telecom stocks featured in the list were enablers.
Many of these stocks already are household names to individual investors, including Tellabs (TLAB : Nasdaq), and Comverse Technology (CMVT : Nasdaq) and the two mentioned above.
But there are some lesser-known stocks under accumulation by the country's top fund managers as well. Here are three enabling stocks that you may not have heard of. Each has a different focus, and each has captured the hearts and pocketbooks of leading investors.
Inet Technologies (INTI : Nasdaq)
More than 90% of the Inet's revenues are generated from products that allow facilities-based telecom carriers to monitor and troubleshoot their networks.
Additionally, Inet has rolled out products that help with general business practices and to maximize carriers' benefits from on-net coverage.
Even though it went public this year, Inet is ten years old and stable. With half its growth generated overseas, Inet is a growth play. It also possesses a who's who list of US customers that will greatly assist the company in securing international business.
Also, the company is demonstrating strong earnings and revenue growth
Audiocodes (AUDC : NYSE)
This is my favorite of the three at this point in time. Audiocodes develops and markets technologies that allow for the transmission of voice and fax over packet-based networks.
These types of technologies are what firms like Level 3 (LVLT profile) are all about. Overall growth in and demand for data communications is growing and the company enjoys an early lead as an enabler in the Internet Protocol (IP) sector.
Research in Motion (RIMM : Nasdaq)
Research in Motion is a wireless play - designing, marketing and manufacturing two-way messaging and radio devices.
This firm is my least favorite of the three at this point - primarily because of the company's dependence upon revenue from BellSouth (BLS : NYSE), which has been declining.
I find the company's position intriguing, however, and will watch for next quarter results to see if the company successfully offsets declining BellSouth revenue through its several recently-inked deals.
It has recently inked several deals, including Avis car rental and eDispatch. There is also potential for the stock price to shoot up with another high-profile announcement and with the explosion in wireless growth.
Casey Freymuth is president of Group IV, Inc., a Phoenix-based strategy consulting firm to high tech industries that publishes "The Telecommunications Service Provider: How Much is it Worth?" - a comprehensive report on values and drivers in the communications industry. His Talking Telecoms column appears Wednesdays. |
