To: Puff Daddy who wrote (63769)
From: swisstrader
Wednesday, Jan 19, 2000 8:04 AM ET
Reply # of 64188
On EGHT:
Up Close and Personal: 8 x 8, Inc.
Tuesday, January 18, 2000 10:47 AM
by A. Sahoo
8 x 8, Inc. (EGHT) isn't a company I have followed closely. It's been off my radar for two reasons - firstly, although it is an Internet telephony
company, it competes in the somewhat less exciting equipment sector; more importantly, though, for the past year, EGHT's stock price has remained
relatively stable in the $3 - 7 range. Last Friday, though, I noticed that EGHT closed over $ 8 - an important resistance level - on a relatively high
volume of 2 million shares.
The following Monday, it moved up further into the $9s. That was enough to grab my attention and check this company out.
Until 12 months ago, EGHT was not an IT player. Its products consisted of about $20 million per year in videophone and video monitoring equipment,
sold to OEMs and resellers. Then, in December 1998, EGHT entered the IT arena with vertically integrated semiconductor, hardware and software
products that OEMs could use to build IT functionality into telecommunications equipment. In a nutshell, EGHT's Intraswitch and associated equipment
allows service providers struggling under high leased line and equipment costs to shrink their expenses along with the number of lines they must provide
their customers by using packet-switched, rather than circuit switched, technology.
Its first offering was a semiconductor product, the Audacity Internet telephony processor, that combines telephony protocols with audio
compression/decompression algorithms and implements multiple, simultaneous Internet protocol phone calls on a single integrated circuit. Four months
later, EGHT added its Symphony Media Hub, an integrated system based on the Audacity semiconductor that connects up to four analog telephone
lines
to an IP network. In September 1999, EGHT announced the Audacity-T2 IP Telephone Processor, an IP phone on a chip. In the six months ended
September 30, 1999, EGHT sold about $140,000 worth of evaluation units of these broadband telephony systems. (The first commercial sales are
expected mid-year). Revenue streams are two-fold: complete IP telephony solutions, including central office management software and customer
premise equipment, sold directly to telephone service providers such as incumbent local exchange carriers (ILECs), competitive local exchange
carriers, (CLECs) and Internet service providers (ISPs); and anticipated licensing agreements for high-volume manufacturing of its products with
OEMs and third-party
developers of telephony applications like consumer telephone makers.
Because existing telephone companies own the only wires connecting residents and businesses, they maintain an essential monopoly on local telephone
service. EGHT's products enable competition with incumbents by allowing ISPs and CLECs to offer voice service over lines previously dedicated to
data, opening the $40 billion market for business voice services. The integration of data and voice networks also allows service providers to offer many
new
services - including unified messaging, find me/follow me and multiple lines per number - that businesses and consumers will find extremely valuable.
Scott St. Clair, EGHT's Director of Corporate communications, believes the products are a no-brainer for CLECs seeking to reduce their costs while
expanding their services. Particularly since they are cost effective for both service providers and end users.
So why the big run up in price all of a sudden? During our conversation, St. Clair told me that the company has recently been talking to several
institutions
and believes the jump was due to increased institutional buying.
Although I do like to get information directly from the source, there is a lot of value in impartial, unbiased opinion. So, I called one of the two analysts
covering EGHT. Both have "buy" recommendations on the shares, but because Emerald Research does not make a market in them, I thought Stan
Corker's opinion might be more objective.
I definitely called the right person. Stan has been watching EGHT for the past 2 years, and recently upgraded Emerald's "hold" to a "buy" in November,
estimating a price over the next 12 months of $12 - 15 per share. Like many others in the investment community, he believes the Internet telephony tide
is rising. However, he has selected EGHT from the dozens of companies trying to make a mark in this market because of their technology and
management.
On the technology, Stan stated, "EGHT is a chip technology company by experience. They have a lot of expertise in that area from their old
videoconferencing products, and know how to solve related problems like echo cancellation that can take incumbents like Lucent and Texas
Instruments a
lot longer to figure out. This puts them in a good position to deliver the high quality chips that their customers will demand, and establish an early lead in
this market". He also verified that the CLECs, always looking for ways to expand their revenues, are indeed open to establishing a relationship with a
new player like EGHT. For a relatively small incremental equipment cost, a product like IntraSwitch would allow them to turn data-only customers into
data-and-voice accounts.
Although EGHT's management team is young, Stan feels that they have what it takes to establish meaningful partnerships - which are vital to success in
this market - with some of the larger players. He called them "aggressive and knowledgeable, with a good understanding of the market". Additionally,
the
company has recently brought in additional telco management expertise, via the appointment of two new directors to its Board - Joseph Markee as
co-founder and chairman of Copper Mountain Networks, and Lee Camp, president and CEO of Pacific Telesis.
So what are the risks on this one? Despite the latest Board member additions, lack of experience in the telco market may be the largest. Although Mr.
St. Clair assured me that EGHT was putting in place the sales force it would require to sell to the CLECs, such expertise may not necessarily be easy
to come by. While EGHT has substantial experience in videoconferencing, telco is a completely new arena for the company. The next 4 - 6 months will
be critical
for EGHT, as they complete testing of the new products and begin the first commercial sales.
If you believe in the potential of Internet telephony, then EGHT is a good company to watch. To quote Mr. St. Clair, "We are going through a
significant technology revolution in the telephone business that over the next 10 years, will ultimately affect every customer and business service in a very
positive way. 8 x 8 is riding a wave, but not leading a revolution". |
