Dow Jones Online News, Tuesday, June 23, 1998 at 17:14
NEW YORK -(Dow Jones)- Shares of Pairgain Technologies Inc. and
Adtran Inc., two firms that develop of technology to increases the
data-carrying capacity of traditional copper telephone wires, rose
Tuesday on the belief that they have put the worst behind them.
Shares of Nasdaq-listed Adtran (ADTN) gained $3.813, or 16%, to
settle at $27.313. Volume totaled more than two million shares, compared
with average daily volume of 276,667. Shares of Pairgain (PAIR) added
$2.625, or nearly 16%, to close at $19.125. Nasdaq volume was 9.9
million shares, compared with average daily turnover of about 2.4
million shares.
"There's a general shift in investor psychology that they've seen the
worst in terms of their business models," said Greg Mesniaeff of
Robinson-Humphrey Co. He added that merger speculation about the
industry is contributing to the stocks' activity. "We've seen a lot of
mergers in this sector, and I think the trend is far from over," he
said.
Adtran's stock jumped last week on those rumors, but Mesniaeff said
the company announced that it isn't for sale and has denied rumors that
Ericsson Telephone Co. (ERICY) and Northern Telecom Ltd. (NT) are
potential buyers.
NationsBanc Montgomery Securities Inc.'s Al Tobia added that he
doubts that Adtran is a takeover target, but noted that Wall Street
hasn't ruled out a bid for PairGain.
There has been talk of a buyout by an international player that seeks
distribution to U.S. carriers, said Joseph Noel of Hambrecht & Quist
LLC.
In a recent research note, Volpe Brown Whelan & Co.'s Timothy
Savageaux called PairGain "the most attractive acquisition candidate in
the communications equipment universe." Some analysts have mentioned
Ericsson as a possible suitor.
Recent consolidation in the industry includes plans by Northern
Telecom to buy Bay Networks Inc.; Tellabs Inc.'s agreement to acquire
Ciena Corp. as well as mergers of Alcatel Alsthom SA with DSC
Communications Corp. and World Access Inc. with Telco Systems Inc.
Pairgain and Adtran specialize in the HDSL, or high bit-rate digital
subscriber line, technology. Like the better-known ADSL, or Asymmetric
Digital Subscriber Line, format, HDSL is a variant of the broader
Digital Subscriber Line, or DSL, technology. DSL and its variants use
the existing network of phone lines operated by the Baby Bells but
promise to offer transmission speeds many times faster than traditional
modems.
HDSL was the subject of a price competition waged from last summer
until the start of the year, Mesniaeff said. "Both have seen HDSL prices
plummet 35%," he added, but "there's a growing sentiment that the worst
is over."
Tobia said an upswing in the HDSL and T1 end-market spending may also
be breathing life back into share prices. T1 involves superfast,
dedicated lines that most offices use to connect users to the Internet.
Spending, whic was weak in May, has picked up sharply in the last
couple of weeks, Tobia said. He added that both companies should
"comfortably" meet or exceed Wall Street's second-quarter estimates,
which already have been revised downward.
The mean estimate in a First Call survey of 17 analysts projected
earnings of 17 cents a share for Pairgain in the second quarter. The
mean estimate of 11 analysts for Adtran's second quarter came in at 28
cents a share.
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