Part of H&Q Joe Noel's March 9th 2 pager. I meant to post sooner but have been overloaded elsewhere. Email me for a uuencoded pdf copy of complete report w/ tables (you'll need uudecode and acrobat to read, though)
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On Tuesday, we had a chance to visit with ICOM management
at their headquarters in Richardson, TX. The meeting was
upbeat, we got a chance to see Intelect's technology
demonstrated firsthand, and we met the company's new Senior
VP of Engineering. Details of the meeting are as follows.
We expect Intelect to sign a distribution agreement with at least
one major supplier of telecom and networking equipment during
the next two months. This agreement will likely be focused on
the SonetLYNX product. It is unclear at this point in time if
the deal will be structured as an OEM agreement or as a straight
distribution pact.
Development of the CS4 switch continues to progress. This
product is expected to begin commercial shipping during the 4th
Quarter 1998, and the company believes that it has strong
prospects for a large initial customer for that product. At this
point in time it is undecided if this product will be sold and
marketed as an ICOM product or through an OEM or other type
of agreement.
Management reiterated their belief that the company has enough
non-Asian prospects for its SonetLYNX product to meet current
analyst estimates for revenues and per share earnings for 1998
without Asian revenues. This would mean that any Asian
revenues would be an upside to our model. Despite this,
management is also positive about Asia, its joint venture in
Korea, and the possibility that there may be more business in
Asia for the company in 1998 than in 1997.
In keeping with the company's comments on their 4th Quarter
1997 conference call, we are lowering our 1st Quarter 1998
numbers, but will keep our FY 1998 numbers steady.
Estimates per share for 1998 move from ($0.03) on revenues of
$14.4 million to ($0.10) on $13.4 million. The fiscal year
1998 estimates remain at $0.40 EPS on revenues of $84.0
million.
Recommendation: We are reiterating BUY recommendation
on ICOM. We feel that much of the possible negative impacts
of delayed product roll-out, partnership uncertainty and Asian
exposure have been built into the stock at this price. Looking
forward, we feel that given the current stock price, the
company's strong line up of products, and its possible
opportunities for distribution of those products, that the upside
potential outweighs the downside risk for this stock.
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