You say that investors are less willing to reward large companies with high P/E ratios. Then why does Microsoft, a $90 billion company have a P/E of 45? And why does Ascend, a $9 billion company have a P/E of 70?
My understanding is that Wall Street discounts USR's P/E because a good percentage of its business is in the low margin, consumer oriented, modem business. However, that will change considerably in 1997 as USR becomes recognized as a leader in remote access servers and related technology.
The intent of USR's x2 strategy is to motivate ISP's, whether or not they are currently USR customers, to buy into their x2 technology. The key to this strategy working is for USR to have x2 on the street ASAP. As long as their is no sign of 56KBPS from the competition, ISPs will feel considerable motivation from both their customers and from USR sales people to upgrade to USR servers.
However, if x2 is delayed or if 56K modems are a dissappointment, then USR will have considerable difficulty meeting future sales projections. Therein lies the risk. |
