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Market Report -- Story Stocks (AWRE, ADI, INTC, LU, STM, COMS, CSCO, NT)
October 19, 2000 2:28:00 PM ET
Aware (AWRE) 31 5/8 +11 1/4: Everything DSL-related is getting crushed: CMTN, PDYN, WSTL, etc. So how is AWRE up 55% on the day? Aware licenses intellectual property and software to semiconductor and equipment manufacturers in the DSL space. They don't sell equipment or chips, they develop and sell their technology. Customers include Analog Devices (ADI), Infineon Technologies AG, Intel (INTC), Lucent Microelectronics (LU), NEC, Siemens, ST Microelectronics (STM) and US Robotics/3Com (COMS). After essentially buying their R&D from AWRE, these customers then turn AWRE's architecture into chips that eventually get sold to companies like Cisco (CSCO), Nortel (NT) and Lucent (LU). By not developing the infrastructure necessary to actually manufacture chips or DSL equipment, AWRE avoids the significant capital expenses, labor and inventory costs required by production. The fact that AWRE blew away Street estimates on 50% revenue growth would suggest that although DSL deployment has been a major disappointment to investors, DSL-related chip companies are still investing in R&D. Does that mean it's time to buy these beaten-up DSL names at record lows? Absolutely not. The expectations were set way too high for those companies, they need to be reset, and further shakeout is still on the way. Does that mean AWRE is the way to play this space? With a heavy dependence on ADI (22% of 1999 sales), a cyclical downturn in chip stocks predicted and public market valuations of their customers languishing, there are significant risks involved in a small-cap name with a revenue run-rate of $30 mln. However, AWRE has guided Q4 revenues and 2001 projections significantly higher. AWRE expects to acheive $45-47 mln in 2001 revs and EPS of $0.86-0.91 versus current estimate of $0.65. The company can afford to be forward looking because almost half of their revenues come from royalties. We're still too leery of anything DSL-related as a result of being burned before, but today's price action suggests that AWRE may be the only viable pure-play in the DSL space right now. - Matt Gould, Briefing.com
Perry P. |
