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Technology Stocks : Qualcomm Incorporated (QCOM)

QCOM 170.90

-1.3%

Nov 7 9:30 AM EST

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To: SteveG who wrote (26337)	4/14/1999 2:34:00 AM
From: SteveG	Read Replies (1) of 152472

CSFB Cabi on ERICY: Ericsson announces two acquisitions improving its position in converged data/voice networks Marc A. Cabi · Ericsson announces the acquisition of two companies as part of its strategy to extend its product offerings for next generation converged data/voice network systems. · Ericsson will acquire Torrent network for $450 million in cash, which will become part of the Ericsson Datacom organization. The TouchWave price tag is $46 million. · We expect Ericsson to continue its string of pearls approach to acquisitions and expect voice/data convergence to be a meaningful revenue source for the company over the next couple of years. · We reiterate our Strong Buy rating with a $40 price target. Investment Summary Ericsson announced that it would acquire two companies as part of its overall strategy to extend its product offerings for next generation converged data/voice network systems. Torrent network will be acquired for $450 million in cash and will become part of the Ericsson Datacom organization. The TouchWave price tag is $46 million. We believe both of these represent a continuation of Ericsson's “string of pearls” approach to data networking acquisitions and its focus on participating in the new growth markets that are emerging as a result of technology convergence. We reiterate our Strong Buy rating on the shares with a price target of $40. Torrent Acquisition The acquisition of Torrent networks provides Ericsson carrier-class routing equipment for IP traffic. As an aggregation router, Torrent's products are expected to complete the company's MPLS (Multi Protocol Label Switching) solution for IP over ATM. The company now plans to offer customers end-to-end IP and ATM solutions. We expect the company to aggressively pursue the back-bone opportunities that are emerging from the increasing demand for voice and data converged traffic over packetized networks. Although the company is focused to compete globally, we believe the greatest opportunity for Ericsson's data strategy will be Europe as that market's appetite for services accelerates. Ericsson has a large incumbent customer base outside the U.S. that we believe could be a core focus going forward. The data market is currently robust in North America where Ericsson is a small player and market share success here may be more difficult or costly to achieve. TouchWave TouchWave is a provider of enterprise IP-telephony solutions. The TouchWave product range targets small- and medium-sized businesses and branch networks for larger organizations. Designed to provide lower cost solutions, the products are targeted to allow easier integration of voice and data in enterprise settings. We expect the company to expand its enterprise marketing as a result of this acquisition. Outlook The financial outlook, as a result of these transactions, remains virtually un-changed, although, there is potential for near-term dilution as these acquisitions are integrated into the Ericsson organization. We will hold our earnings estimates at current levels until the company reports results next week. We do believe it would be in our best interest to represent modest dilution upon revision next week. Our current estimates are $0.95and $1.30, for 1999 and 2000 respectively. Ericsson has been a leading supplier of wireless solutions for many years and we anticipate that the company will continue to dominate this market segment. It also is forging a strategy to become a better-positioned player as next generation network systems that converge voice and data over packetized networks emerge as a new market segment. Although challenges remain for Ericsson and others to broaden their product portfolios and improve on time-to-market delivery, we believe the company's extensive customer base provides a valuable asset in pursuing new business opportunities. We reiterate our Strong Buy rating with a price target of $40. ~~~~~~~~~~~~~~~~~~~~~~~~~ aside news blurbs from last week: The Components Group of Ericsson announced the establishment of a new Design Center based in Phoenix, Arizona concentrating on leading edge RF Power technology solutions. Ericsson reduces its stake in AU-System from 41% to 25%. AU-System is a provider of professional services and software products to the telecom and datacom industries.

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