Pairgain: Analysts Also See Promise In ADSL Potential
Dow Jones Newswires
BUENA PARK, Calif. -- Shares of PairGain Technologies Inc. (PAIR) soared 66% on
Monday as renewed takeover talk and optimism for its ADSL technology spurred heavy
buying interest.
On a day when small-cap technology shares did well on the whole, analysts struggled to find
specific reasons for Pairgain's surge - which made the stock the top Nasdaq performer
Monday.
Among the theories advanced:
Takeover rumors swirling around another telecommunications equipment company, Ciena
Corp. (CIEN), have spread to PairGain, a perennial takeover candidate;
Optimism that new international standard for asymmetrical digital subscriber line, or ADSL,
technology, will spur sales to regional Bell-operating companies in 1999;
Pairgain is simply playing catch-up to peers like Adtran Inc. (ADTN) and Advanced Fibre
Communications Inc. (AFCI), whose shares have risen substantially off recent lows.
A spokeswoman for PairGain said she hasn't heard anything that would explain the stock
movement, and said the company hasn't released any market-moving news.
The stock gained 5 13/32, or 65.8%, to close at 13 5/8 Monday on whopping Nasdaq
composite volume of 20.7 million. Pairgain's average daily volume is 1.5 million.
PairGain, of Tustin, Calif., has often seen takeover rumors move its stock - as recently as this
summer, said John Todd, an analyst with Wedbush Morgan Securities.
At depressed recent prices around 9, the theory becomes more likely than around 19 in
summer, Todd said.
"A lot of the takeover stocks in the group are moving the entire telecommunications equipment
sector," added Michael Neiberg, an analyst with ING Baring Furman Selz.
Pairgain's product pipeline and much-coveted customer relationships with regional Bell
operating companies make it an attractive target for both computer networking and
telecommunications equipment makers, analysts said.
Rumored partners have included Cisco Systems Inc. (CSCO), Ascend Communications Inc.
(ASND), Lucent Technologies Inc. (LU), Alcatel SA (ALA) and LM Ericsson Telephone Co.
(ERICY).
While price pressure on its main HDSL products has depressed Pairgain's shares this year, the
rising potential for sales in the newer ADSL category is a cause for optimism, Todd said.
HDSL, currently Pairgain's main product, is short for high-bit-rate digital subscriber line. It
allows regional Bells to bring faster connections into the home or business than low-grade
copper telephone wires would otherwise allow.
ADSL will allow for even wider-bandwidth connections, allowing RBOCs to compete with the
emerging threat of cable modems, which bring speedy phone, Internet and television
connections through one coaxial cable.
Last week, Pairgain adopted a newly set international standard for ADSL. The unifying
standard may act as a catalyst for RBOCs to begin spending on ADSL, said Punk Ziegel & Co.
analyst Michael Davies.
"All of the sudden there's greater credibility that this market is beginning to take off," Davies
said.
Some technical factors may also have helped Pairgain's stock, analysts said.
In mid-October, the company announced a buyback program for up to 10% of its shares. The
Pairgain spokeswoman did not have any information on whether it has been implemented, but
market contacts said there was no evidence of company purchases to date.
Also, market contacts said there was a heavy seller in Pairgain's stock last week - when shares
in competing companies rose - and that selling pressure has run its course.
-By Anthony Palazzo; 714-739-5538; tony.palazzo@cor.dowjones.com
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