Dan, Ascend is a $9 billion company (market capitalization) because investors have awarded it a PE of 70. I prefer to rank companies in terms of sales, rather than market capitalization. Ascend's annual sales for the 4 qtrs ended 9-30-96 were 429.6 Million, while USR's were 1.98 Billion, or 3.6 times the size of Ascend's. Why is Microsoft awarded a PE of 45? That's one of perks of having a virtual lock on the operating system market for PC's (80% in '96, 90% in '97). Oracle has also sported a pretty high PE for the better part of 1996, although that has been cut back lately. Oracle is the leader in data base software, also. There are certainly always exceptions to what I said about big companies (as in mult-billion dollar sales) being awarded higher than average PE's, but I don't see MSFT being given a PE of 70 anytime soon.
>>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.<<
I'm sure you have a good point there. System sales were accounting for 30% of total revenue as of 9-30-96 at USR. I don't remember if that was for the qtr or for the year, but they are obviously still selling a lot of modems to drive sales. There is a difference between being recognized as a leader and the leader, though, that Wall Street recognizes.
>>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.<<
This may be a big stumbling block. From informal surveys some of us have taken of our own local ISP's we have found very few who are enthusiastic in the least about switching to USR servers. Also don't forget that Lucent Technology and Compaq Computer are teamed up against US Robotics. Also of course the old ROK/ASND team. These things are going to present continuing challenges to USR, which hopefully they can overcome.
Some things regarding customers: Some of us who have been following the 56Kbps "war" know about the 3-6 month lead time. However, when I talk to friends who use the internet also, they are not even aware that 56Kbps is about to be offered, much less know or care about any "lead-time". In addition, as I stated about a week ago, when I go into the local Office Max, it's the Zoom modem boxes that have "upgradeable to 56K" stickers on them, while the USR boxes say zippo about 56Kbps or x2. Such examples of extremely bold and aggressive marketing may blunt the effect of USR's lead-time.
Dwight |
