The Research Capital report on WIN, in its entirety. Thanks to King-of-Kings...
30 May 2000 WI-LAN (TSE: WIN X $18.00) Robert Millham, CFA (604) 669-6022
robert.millham@researchcap.com SPECULATIVE BUY Associate: Felix Narhi (604) 669-7122
Reiterate Strong Buy
HIGHLIGHTS
?‹?nApart from general market related activity, we know of no
reason for the recent softness in share price.
?‹?nThe hype in fixed wireless has exceeded reality V but not
for much longer.
?‹?nWe remain believers in OFDM and Wi-LANÝs leadership
position in its technology.
?‹?nWithin a year we expect the cost of deploying a fixed
wireless network to be about 1/5 of the cost today and the
performance to be at least double.
?‹?nA full report will be issued in the coming weeks.
Per Share Data
Target Price (one year): $50.00
Projected Return: 178%
Year End: December
(Revenue figures in ¾000s)
1998A 1999E 2000E 2001E
FY Rev $5,768 $11,300 $25,000 $60,000
FY EPS -$0.37 -0.16 0.06 0.29
P/E n/a n/a 625 129.31
Market Cap. (fd): $394 M
COMMENTARY
In preparation for an upcoming research report on Wi-LAN we have done a thorough review of
broadband wireless Internet access V those offering it and what equipment is being deployed. Given that
Wi-LAN has secured only a few contracts we initially feared that perhaps it was falling behind the
market place. What we have found was despite the hype and claims being made over the past year, little
has been done in the way of rolling out broadband wireless networks. Most of what has been talked
about we attribute to FUD (an industry term for creating õfear, uncertainty and doubtù among your
customers and competitors). The networks that are operating today have been constructed mostly by
small independent ISPs. Thus far, there doesnÝt appear to be any leading choice of vendor. We feel most
of the products are inferior to Wi-LANÝs Hopper equipment (and much more inferior to the OFDM
equipment).
The reason few fixed wireless networks are operating is a matter of simple economics. Current available
equipment doesnÝt offer adequate performance from a bandwidth and cost consideration. We believe this
is about to change. Consider the value proposition that Wi-LAN brings to the industry. Today, the
companyÝs best performing product is its iWILL OFDM access point offering about 24 Mbps
throughput for US$15,000. We understand that soon the company will be reducing this price to
US$7,000 and we should see the speed at least double by the end of the year. Currently Wi-LAN does
not have low cost OFDM customer premise equipment (CPE). Wi-LAN expects to have its CPE
equipment available next fall for approximately US$1000 (in volume these prices will continue to drop).
That CPE may support up to 10 users. At this point Wi-LAN will have a product that is competitive to
cable and DSL. Considering the vast number of industrial parks, office buildings and residential
complexes that donÝt have broadband access the business case for wireless access becomes very
compelling. In summary, within a year we expect the cost of deploying a fixed wireless network to be
about 1/5 of the cost today and the performance to be at least double.
This business case hasnÝt gone unnoticed by heavy weights like Sprint or MCI World Com who jointly
control 60% of the MMDS licenses in the U.S. We believe that MMDS will become the dominant
spectrum for service providers to offer fixed wireless Internet access. Both Sprint and MCI have
budgeted approximately $200-300 million each towards opening 10 to 15 MMDS markets in 2000
alone. By late 2001, the MCI/Sprint entity plans to have MMDS deployed in 100 cities V the cost could
be over $2 billion. We believe Wi-LAN will likely play a significant role in this area as we believe they
thus far have proven the most spectrum efficient technology that is adaptable to the MMDS spectrum.
ItÝs important for investors to also consider the larger role that Wi-LANÝs OFDM can play in many more
applications such as home networking and cellular services. These opportunities will become more
apparent as the cost, power requirement and size are all significantly reduced with Wi-LANÝs ASIC
chip. (Wi-LAN will be the first to develop an OFDM ASIC chip scheduled for delivery June 12). The
availability of these chips will allow other developers to test and incorporate the power of OFDM into
their systems. Many of the potential wireless applications have yet to be conceived.
ItÝs difficult to value a company like Wi-LAN with little sales to support a hefty market capitalization.
Most of the companyÝs value is in its intellectual property which few investors have the ability to assess.
So we look for third party validation to support the companyÝs claim of superiority. As there has been
little deployment of equipment thus far there are few customers to look for validation. Thus far, Wi-LANÝs
principle validation comes from Philips, Telia and Tele2. Considering that Telia and Tele2 have
built two of the largest wireless Internet access networks in the world (albeit still small) and Philips is
the third largest consumer electric company, we consider this strong initial validation. As outlined above
we feel the industry is about to undergo a tremendous build-out stage. This we feel will be much more
apparent in the next 3-6 months. We feel a tremendous opportunity is shaping up in the wireless sector
for investors who take advantage of what we feel will be temporary softness in share prices. |
