[Pair]
Dug,
This is what's hurting PAIR:
<<NEW YORK -(Dow Jones)- Shares of PairGain Technologies Inc., a developer of technology that increases the data-carrying capacity of traditional copper telephone wires, fell again Monday on fears of pricing pressure in its market segment.
PairGain specializes in the HDSL, or high bit-rate digital subscriber line, technology. Like the better-known ADSL, or Asymmetric Digital Subscriber Line, format, HDSL is a variant of the broader Digital Subscriber Line, or DSL, technology. DSL and its variants use the existing network of phone lines operated by the Baby Bells but promise to offer transmission speeds many times faster than traditional modems.
At midafternoon, PairGain (PAIR) shares were off $1.375, or 8%, at $15.875 in heavy Nasdaq trading, after trading as low as $14.625. Shares of PairGain fell 18.3% Friday after Chandan Sarkar, an analyst at SoundView Financial Group, warned industrywide price cutting might hurt the firm's revenue growth.
But Sarkar later said investors overreacted to his report and he continues to rate PairGain stock as a "buy."
Goldman Sachs & Co. and UBS Securities Inc. made comments Monday fanning the fears that price cuts in the HDSL sector, initiated by Adtran Inc., will hurt PairGain's revenue and earnings in the near term.
UBS analyst Nikos Theodosopoulos lowered his 1997 earnings estimate for Tustin, Calif.-based PairGain to 73 cents a share from 81 cents. Theodosopoulos cut his 1998 estimate to 93 cents a share from $1.05. But he also maintained a "buy" rating.
Goldman analyst Abraham Bleiberg said he didn't change PairGain's earnings estimates for 1997 and 1998 of 78 cents a share and $1.05, respectively. Bleiberg maintained a market rating of "outperform."
PairGain is the market leader for HDSL, with about 70% of the market, said Furman Selz Inc. analyst Michael Neiberg.
Sarkar last week said Adtran and Pairgain have different opinions on the impact of price cuts. "Adtran (contends) that demand will skyrocket, while Pairgain continues to worry that the (Baby Bells) will pocket the money," Sarkar said. He said said Adtran's price cuts appear to be headed towards 35% over the next 12 months.
But that would be a slowdown from recent price-cut trends in the sector. Prices fell 14% in 1996, 23% in 1995 and 40% in 1994, said Theodosopoulos. The concern this time around is that demand won't necessarily increase as prices are lowered, which has happend in the past.
Most of the buzz surrounding ADSL and the other DSL variants has been in regard to the technology's promised ability to speed up the delivery of Internet information by increasing the capacity of traditional phone wires.
Some of the Baby Bell telephone companies plan to start rolling out ADSL-based modem services later this year as a direct challenge to cable television companies that aim to offer high-speed Internet access based on cable lines. ADSL promises to let customers download Internet pages as much as 50 times faster than normal modems.
Shares of PairGain fell last month after investors grew alarmed at the the fact that the company shipped more products than usual in the last month of the first quarter. PairGain reported first-quarter earnings, excluding accounting charges, of $14 million, or 19 cents a share, compared with $6.2 million, or nine cents a share, in the year-earlier period. Revenue soared 75% to $70.7 million.
PairGain in February agreed to buy Avidia Systems Inc. for about $94 million in stock to boost its technology. Avidia makes digital switching equipment that allows home and office telephone lines to accept high-speed transmissions from powerful networks. In addition to the switching equipment, called multiplexers, Avidia produces network products that deliver video images to computers and specializes in Asynchronous Transfer Mode, or ATM, technology.
Separately, Orckit Communications Ltd. Monday said it received an HDSL contract in China. The company said its HDSL equipment will initially be deployed in 21 Chinese cities, including Beijing and Shanghai, and will eventually expand to cover the entire nation. The firm said the contract is expected to have "only a small effect" on Orckit's 1997 sales volume. For 1996, Orckit reported revenue of $13.7 million.
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Transmitted: 5/19/97 1:33 PM (L100VKRw)>> |
