Hi Robert-
<Isn't AMTX's stock valued at 130 million now?>
Current Market Cap (18.959M SO x $12.5) = $237M
<the ADSL industry at 6 billion in 3 short years.>
First, I think this estimation is a bit aggresive. Second, this is industry wide, which will include ALL related service.
<I've been hearing that CAP is a short term head of the race solution
that has big troubles and DMT blows it away!>
"Believe none of what you hear and half of what you see."
<Why else would they be playing hard ball with some of the players out there.>
Amati wrangled the 1993 standard by adapting their entry very well to the line conditions of the test (while Globespan was working on their BA solution). The 1993 standard is passe. Amati wanted to squeeze as much out of it as possible. To go with simple reasonable percentage licensing would NOT cut it as CAP was available and selling and there was no real DMT solution. So Amati's ploy was to get a big prepayment from whoever they could for future licensing revenues. It seems to have backfired, to Aware's advantage. The CG delay has further hurt them.
<What percentage of that will AMTX get 10% plus all the other royoties and other products that are coming out>
Further speculative consideration here could be interesting.
Amati licenses line code. Currently, they own the patent for tone-swapping, which is the essence of the current ANSI-DMT standard. Amati MUST license the patent at a fair and reasonable rate. They have licensed with SOME upfront monies from MOT, but we don't know how much upfront (though it SHOULD already have been in a previous 10Q) or what percent of future CG sales. Amati "hopes" that licensing will cover future R&D expenses, so, at best case, licensing will NOT translate into earnings.
Further, the 1993 was from embryonic ADSL. The standard is currently in significant revision (Issue 2). And to implement DMT onto programmable DSPs (ie., TI C6X), will likely require even further divergence from the standard. So there goes any certainty of future licensing to Amati's revenue streams.
In order to make any profits, Amati has to sell modems. And Amati will need to compete with some big, established companies... USRX/3COM, Ascend/Cascade, and Ericsson (to name a few) and a slew of smaller companies, with e-e solutions, that have already gotten contracts. And as ADSL kicks in, so will further competetion, which will drop prices and profit margins to those of a commodity product.
Even in the short term, let's presume that Amati will be involved in the order with Siemen's for 150K units. How much profit do you think Amati will make per unit? Let's say $10 profit/unit. That's $.08/share.
Most analysts see Amati losing money throughout 1998.
Now what kind of sales/earnings would be required to justify the current price of $12.5, but in, say, two years from now? If Amati made .40/share in 1999, that would be a P/E of 31. They would need to be growing earnings at around 30% to justify a 1999 price of $12.5. Certainly doable (though not a given) even with margin erosion. So it is possible that two years from now, a stock price of $12.5 will be justified.
For a more ambitious consideration, let's allow Amati to be shipping Amati brand modems, in three years (Year 2000), for say a generous $200/modem (compare with Netspeed's CURRENT price point of $200/LINE). Let's say they ship 500K units. That's revenue of $100M, and profit (allow 20% net margins) of say $20M.
After a secondary offering (and periodic warrant/option exercise), let's say shares outstanding are 22M. Then in 2000, Amati might make $.90/share. If going forward from there, it was anticipated that Amati would grow earnings at, say, 50%, this would justify a price in the year 2000 of $45. Possibly a very impressive return of 360% over 3 years (about 55% y/y).
This is an ambitious outlook, with a number of higher-risk assumptions built-in.
What's the likelihood that Amati will sell 500K modems in 2000?
What percentage of the ADSL modem market will that be?
What's the likelihood that Amati will be able to maintain a 50% growth rate from the year 2000 forward?
What's the likelihood that these modems will sell for $200?
What's the likelihood that net margins will be 20%?
Anyway, an exercise on a sunday morn.
Steve |
