Fool Plate Special/CMTO
Feb 25, 2000
FOOL PLATE SPECIAL
An Investment Opinion
Com21 Connecting
By Dave Marino-Nachison
February 25, 2000
In the category of "Good things that go to those who wait" should be inserted the story of cable modem and other
high-speed Internet access equipment supplier Com21 Inc. (Nasdaq:CMTO - news) , shares of which have provided
dynamic returns for investors who were willing to ride out the company's late-199 9 lows.
The shares rose more than 25% this morning, at one point setting an all-time high of more than $64, as the company
unveiled a new product developed in connection with Tdsoft that lets its customers send voice and data at high speeds over
cable lines. Tdsoft, which along with Com21 debuted the product at the CeBIT trade show in Germany, is trying to
establish a position as a leader in sending voice over next-generation mediums such as DSL, cable, fiber, and wireless
spectrums used in local telephone transmissions.
The catalyst for Com21's run upward, though, happened in early December when its modems finally received CableLabs
certification, generally considered the industry's stamp of approval for use with data over cable system interface
specification (DOCSIS) networks.
"We are obviously pleased to be recognized as a CableLabs certified vendor," Com21 President and CEO Peter Fenner
said then. That was an understatement to say the least, the company having failed CableLabs' tests twice already -- and
paying for it, most recently in early September, with market value.
Since then, order flow -- particularly overseas, where Com21's business is strong and CableLabs' certification isn't as
important -- has been strong. A market that's been steadily warming to the prospects for broadband access of all types has
also helped, to be sure, though it should be noted that Com21 does, as a result, compete in some markets with the likes of
high-flying Terayon (Nasdaq:TERN - news) , 3Com (Nasdaq:COMS - news) , Motorola (NYSE:MOT - news) , and
other major players.
But the company has nevertheless been able to carve out a solid market position, recent research reports estimating its
shares in the customer premise equipment (CPE) market -- which covers goods that are located, surprisingly enough, on
the customer's premises, like modems and set-top boxes, as opposed to the provider's -- at about 13%. Com21 operates
in other sectors as well, comparing favorably with Terayon in several sectors.
And now some observers are wondering why Terayon trades at such a premium to Com21 given several different
parameters; based on 1999 revenues, for instance, Terayon trades at about 60 times while Com21 is closer to 14. Is that
disparity enough to warrant further upside for Com21's already hot shares? Not necessarily, but it certainly does appear
like a good reason for further research. |
