Thanks for the heads up anyer. Here's the article for the rest of you. Sorry about the format. One of these days there will be a quick fix for this (cut and pasting different line capacities).
Published Friday, June 12, 1998, in the San Jose Mercury News
Powerwave bottom fishers
may land one
BY ADAM LASHINSKY
Mercury News Staff Writers
BOTTOM fishers always look for instances of Wall Street
overreacting to specific stocks in general market dips, like Thursday's
160-point, or 2 percent, drop in the Dow Jones industrial average.
Analysts at BT Alex. Brown Inc. in San Francisco say they've found
one such case of undo panic: The stock of Powerwave
Technologies Inc. (Nasdaq, PWAV) in Irvine.
Powerwave makes amplifiers for wireless phone systems, equipment
that improves the quality of cellular phone calls.
Up until this year, Powerwave and its competitors -- like
Sunnyvale-based Spectrian Corp. (Nasdaq, SPCT) -- were getting
a large chunk of their revenues from cellular-phone projects in South
Korea. When that country's economy began to implode, work halted
and orders dried up. Powerwave's stock fell from nearly $50 late last
year to below $10 at the beginning of this one.
The company reacted by hunting for business elsewhere in the world,
and it largely has been successful.
The company got 83 percent of its revenues from South Korea in
1997. Now BT Alex. Brown guesses Powerwave will make 85
percent of its sales in other locations in 1998.
''They have the best technology in the industry,'' enthuses BT Alex.
Brown's Ian Toll, whose senior colleague Brian T. Modoff has a
knack For calling micro and macro trends in the wireless industry.
Modoff went to South Korea in late January and shortly after
returning pronounced that San Diego-based wireless leader
Qualcomm Inc. couldn't possibly meet its own rosy forecasts.
Qualcomm promptly said it had suffered cancellations in Korea,
would miss its forecasts and fire workers. The stock, predictably,
took it on the chin.
But back to Powerwave and its efforts to replace the Korean
revenues.
Toll notes that Powerwave's non-Korean revenues in the first quarter
were up 39 percent from the fourth quarter as the company has won
new business from Nokia, Ericsson and Northern Telecom.
''That's a very impressive ramp for their non-Korean business,'' Toll
says. ''They dominated the Korean build-out, and then their stock
was punished for it.''
On Thursday, Powerwave's stock dropped $3.13, or 16 percent, to
$15.88 on rumors it would miss Wall Street's earnings estimate of 11
cents per share in the second quarter. That means Powerwave is
being valued at a discount to its growth rate, notes Toll. At 16 times
estimated 1999 earnings of $1 per share, the company's value is far
below its projected growth rate of 30 percent. It's common for
technology companies to trade for a multiple at or near their growth
rates.
Says Toll, echoing a report he and Modoff distributed to clients
Thursday: ''We are confident they will hit their quarter.''
A word on BT Alex. Brown's bullishness. The investment bank was
lead underwriter of Powerwave's December 1996 initial public
offering at $11.50 per share and its secondary offering last July at
$22.
Part of the unspoken agreement is that an underwriter will ''support''
an investment-banking client by providing research to brokerage
clients. So it's no surprise that BT Alex. continues to pay attention.
But it's also worth noting that the analyst for a lead manager has a
better-than-usual relationship with a company's management.
Anyway, this one will be easy to measure: If Powerwave hits its
numbers, the stock goes back up. It if doesn't, pass a wash cloth to
BT Alex. to wipe the egg off its face. |
