thetelecommanalyst.com
Many Ways to Inform the World
By Erik Dellith, Securities Analyst, Market Guide
There have been many significant advances in the telecommunications sector in recent years, revolutionizing the way we conduct business and simply talk with our neighbors. Companies are developing new ways to send information, both data and voice, over existing copper telephone lines. Aware (AWRE) is one of these companies.
Aware, which recently appeared on the Market Guide Industry Leaders stock screen, provides digital subscriber line (DSL) technology to semiconductor and equipment companies that make products to enable simultaneous high-speed data and regular voice transmissions over copper telephone lines. Its technology falls into a couple of different areas, including Full-rate ADSL and G.lite.
Before we really get into the meat of the company, let's just take a minute to go over some of its different innovations. Full-rate asymmetric digital subscriber line (ADSL) is a technology used for expanding the available bandwidth of copper wire. It allows for the simultaneous flow of voice and data traffic over a single telephone line as each occupies different frequency bands. The G.lite technology factors into this as well.
The company's G.lite technology allows for simultaneous voice and data traffic, without requiring installation of a voice-data splitter. Furthermore, the G.lite technology also does away with the need to have microfilters on phones and answering machines, helping to increase its appeal within this market.
Even with the slowdown in the overall economy, and the telecommunications sector in particular, Aware's products and services remain in strong demand. A sharp increase in the number of ADSL chipsets provided a nice boost to revenue recently. Indeed, the company continues to post better-than-industry-average revenue growth rates, which have allowed for substantial profit-margin improvement.
Likewise, the long-term outlook remains bright. Even though industry growth has slowed of late, sales of ADSL chipsets will likely climb going forward. As more companies further develop their business plans using the Internet, incorporating the Web as a means to improve their operations, demand for high-speed access should climb. The need for this enhanced service should not only increase in the United States but also in other parts of the world. In short, the general long-term industry trend currently appears quite positive for Aware.
Not only does the company have a general industry trend going in its favor, it is also taking steps necessary to grow within this space. For example, it continues to enter new deals that should allow for further expansion down the road. Aware teamed up with Analog Devices (ADI), a leading manufacturer of precision high-performance integrated circuits, to provide FastADSL technology. The company explains that FastADSL is a software enhancement to Analog's ADSL chipsets, which are found in eight of the world's top ten public switched telephone networks (PSTNs). Furthermore, according to the company, these chipsets are integrated into more than 75% of the world's xDSL systems.
What is the benefit of using FastADSL? It enables a telephone line to carry two channels of broadcast-quality (MPEG-2) video, and high-speed Internet access, along with the traditional voice services. Incorporating the FastADSL technology with Analog's chipsets enables data rates that are almost 200-times faster than some existing technology. This should be particularly appealing to telephone companies, which, with this technology, will be better able to provide households with digital television and video-on-demand, along with high-speed Internet access and traditional voice services. Offering such a bundle of services puts more telephone companies in an interesting position to compete with cable and satellite service concerns.
While the deal with Analog has obvious benefits, Aware does not stop there. Most recently, Aware teamed up with Infineon Technologies (IFX), which is among the world's leading providers of communications integrated circuits.
Under the terms of this deal, Infineon has licensed Aware's Dr. DSL diagnostics software, which will be included in Infineon's IVAX integrated voice and ADSL chipset. The combination of the Dr. DSL software with Infineon's technology enables service providers to perform physical and digital tests directly from their DSL equipment.
Infineon explains that there are two key problems with accelerating the residential deployment of broadband. The first is simply determining if a telephone line can support a given level of service; the other is whether the line can be cost-effectively conditioned to carry that service. Furthermore, the combination of this technology should enable service providers to automatically pre-qualify lines while managing their infrastructure to better support bandwidth-dependent services. With this in mind, the IVAX technology will likely see a great deal of demand over the long haul.
While Aware appears to be well positioned for growth going forward, its story is only one aspect of this stock's appeal. Given the weakness in the equity markets for telecom-related issues, many of these stocks are trading at attractive valuations. Aware, in particular, is quite appealing, currently selling at a deep discount to the average of its Market Guide Industry peers. Indeed, on the basis of its price-to-earnings (P/E) ratio, along with price-to-sales, book value, and cash flow, Aware is currently valued well below the industry average. The shares closed at $9.63 on March 30. Meanwhile, the company currently has a PEG (price-to-earnings, relative to growth) ratio well below one (the typical threshold for a value investment), giving this stock rather broad-ranging appeal. |
