Robertson Stephens BUY Report....thought this might be helpful...I'm out at $16 and considering a reentry point.
Robertson, Stephens & Co. Robertson, Stephens & Co.
Aware Inc. AWRE $11.81 9/8/97
Industry: Telecom Equipment
Tim Savageaux (415) 693-3543
Stephen Perkins (415) 676-2905
Change in: Yes/No Was Is
Rating No BUY FY DEC 1996A 1997E 1998E
...EPS 1996A: Actual $0.01 EPS*: 1Q $0.00 ($0.01) A
...EPS 1997E: No ($0.02) 2Q $0.00 ($0.01) A
...EPS 1998E: No $0.25 3Q $0.01 ($0.02)
4Q ($0.00) $0.01
Shares Outstanding (M) 19.3 Year $0.01 ($0.02) $0.25
52 Week Range $19-8 P/E nm 47.8x
Market Cap ($M): $228 Revs($M) 1996A 1997E 1998E
Avg. Daily Volume (000) 220 1Q $1.0 $1.8 A
6/97 Bk. Value/Share: $2.07 2Q $1.1 $1.9 A
6/97 Tot. Debt/Tot. Cap.: 0.0% 3Q $1.5 $2.4
Price/Book Value: 5.7 4Q $1.7 $4.0
6/97 Net Cash/Share: $1.88 Year $5.3 $10.1 $33.5
Div./Yld.: NA MktCap/Rev 43.0x 22.6x 6.8x
3 Yr. Sec. Growth Rate: 50% *Fully Taxed
ANALOG DEVICES ANNOUNCES VOLUME AVAILABILITY OF DMT-ADSL CHIPSET
Analog/Aware Team Come in Ahead of Previous Guidance
KEY POINTS:
ú Analog Devices announced today the availability in volume of its DMT-based ADSL chipset, the AD20msp910,
developed in conjunction with and based on core DMT technology supplied by Aware Inc. The chipset will be
available in volume at prices of $65, versus a previously announced estimate of $80, and has begun shipping.
ú This news represents positive upside to Aware' s cautious guidance on their last conference call of a 6 - 12
week delay in chipset availability due to changes required for conformance with a wide range of US and global
copper loop specifications. With this announcement it is clear that the Aware/ADI team has delivered at the
low end of this range and hence ahead of expectations.
ú Analog Devices noted the selection of its chipset for deployment in ADSL systems made by leading telco and
networking suppliers, including ADC Telecom, Ascend, DSC Communications, LM Ericsson, Sumitomo and
Pairgain Technologies. Several of these OEMs are current strategic partners with or customers of Aware, such
as Ascend, DSC and Pairgain and others such as Ericsson have the potential to be in the future.
ú This news confirms our long held view of the Aware/ADI team as the leaders in bringing DMT technology to
market, ahead of other industry players such as Amati/Motorola and Orckit. Alcatel now looms as the primary
competitor to Aware/ADI on the technology and chipset level, and given the vertical integration of Alcatel in
the systems area they may encounter difficulties in selling chips to fierce competitors such as Ericsson, Nortel,
Lucent and other vendors which have not yet announced a chip supplier. We note that Ericsson originally
announced a decision to go with Motorola over a year ago and is now an ADI customer.
ú This announcement may also positively impact the other major concern addressed by Aware in its last
conference call, specifically the pace of overall deployment of ADSL technology. We have viewed volume
chipset availability, along with LEC business models and access to copper loops by more aggressive CLECs,
as a major gating factor to deployment both in the US and overseas. With the chipset issues put to rest,
volume deployments, especially those currently being planned outside the US in Singapore, Canada and
Europe, may move forward more quickly.
INVESTMENT IMPACT: We continue to view Aware as the best positioned provider of core ADSL technology,
with strong relationships evident through this announcement on the chipset front and an equally strong group of
OEM partners in the telco, networking and CPE systems areas. We note that Aware will receive royalties on each
ADI chipset sold to OEM vendors, and in many cases will receive a portion of the OEM' s revenue stream as well.
In addition, we believe volume chipset availability will allow Aware to pursue a more aggressive hardware and
subsystem strategy to complement its successful licensing and royalty efforts.
From a valuation standpoint, the shares remain at a discount to the peer group of other emerging ADSL
technology and systems providers. We note that Westell' s business model has migrated to more of a strategic
partnership/licensing and CPE/subsystems manufacturing model, as in its announced deal with Bell Atlantic and
DSC Communications. This model is increasingly similar to Aware' s, although based on non-standard CAP
technology which Westell does not own or control. Despite our view Westell' s diminished prospects of becoming
and end to end systems provider in this market and its lack of core technology, it retains a market capitalization
four time that of Aware. This suggest significant upside should Aware' s partners become involved in
volume DMT-ADSL deployments and Aware' s participation beyond royalties becomes clearer.
ADSL Comparable Valuations
Company Ticker Price Mkt Cap Comment
Amati AMTX $16.75 $323M DMT-ADSL
Aware AWRE $11 13/16 $228M DMT-ADSL/DWMT
Orckit ORCTF $14.88 $212M DMT-ADSL/HDSL
Westell WSTL $24.50 $890M CAP ADSL
THE COMPANY: Aware Inc. is a developer of last mile transmission technologies for broadband access networks.
The company has developed, along with semiconductor partner Analog Devices, Inc. (ADI), an ADSL technology
solution based on its implementation of Discrete Multitone (DMT) modulation technology. Aware is pursuing broad
adoption of its technology through a multi-faceted strategy which includes participation in telco trials and laboratory
evaluations of ADSL technology, acquisition of strategic partners from the ranks of major telecom and datacom
equipment vendors and further development of its relationship with Analog Devices, a leader in the supply of ICs
for communications applications. Aware has also developed and patented a proprietary modulation technology,
Discrete Wavelet Multitone (DWMT), which has enhanced throughput and noise immunity and is based on the
company' s core competency in communications applications of wavelet mathematics. Aware is pursuing
opportunities in the HFC, SDSL and VDSL markets with DWMT technology. The company' s also develops and
markets compression software products based on wavelet techniques. The company executed an initial public
offering of 3.4 million shares at $10 per share on August 8, 1996.
INVESTMENT THESIS: We believe suppliers of enabling infrastructure technologies for broadband access
networks such as Aware are well positioned for increasing bandwidth demand from both carriers and consumers.
Competition among service providers in the provision of voice, video and data services as well as bandwidth
intensive services such as high speed data are examples of this dynamic. Aware is particularly well positioned to
help telcos meet demand among consumers for high speed access to the Internet and on-line services. We
believe total spending on broadband access equipment will approximate $30 billion in the US along through the
end of the decade, and that Aware has opportunities to address more than a third of this opportunity.
INVESTMENT RISKS: Among the risks are the overall timing and intensity of telco deployment of ADSL
technology, acceptance of the company' s ADSL technology by telephone companies, competition from other
versions of ADSL technology such as CAP and other suppliers of DMT-based ADSL, the company' s ability to
increase its production of ADSL modems for trials and early deployment by telephone companies and dependence
on current strategic partners such as Analog Devices.
Robertson, Stephens & Co. maintains a market in Aware, ADC Telecom, Ascend, and Ericsson and has
been a managing or comanaging underwriter for Aware within the last three years. |
