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3COM and Home LANs - Investment Ideas
By The-Adviser.com - Monday, 5/10/99 released on 4/26/99 updated on 5/10/99
Update New York - The wireless networking industry continues to receive heightened attention and increased investment capital. Only four days after we wrote our research discussing Proxim, Intel invested $10.4 million to purchase 2.9% of the Company. Proxim currently trades at $39 which reflects an increase of $9 or 22% since our recommendations. 3COM stock now trades at $26 3/8 which reflects an increase of 6%.
Telxon's stock remains volatile and we expect it to continue until the latest quarterly earnings are released. We expect that Telxon will continue to restructure and rebuild the Company since the departure of their CEO and CFO. We would not be surprised of short-term bad news as it relates to Telxon.
The wireless technologies market, albeit the most expensive networking solution, will continue to grow. The technologies offers unmatched flexibility and performance. Consumers can move attached devices anywhere within range without regard for wires or jacks. Current products have standard speeds of up to 2MBPS (similar to a phone line) and are expected to increase to 24 MBPS within 1 year and 100 MBPS within 3 years. Standards in the home area continue to lack; however, we expect a variation of IEEE 802.11, which is currently the industry standard for high-end business networks to be adopted for home markets.
As a result of the recent AT&T purchase of MediaOne, we believe additional attention will be focused on the home networking group. With the proliferation of broadband networks and the convergence of the television set with the PC, our analysts also believe that Broadcom is in the right market in the right time. They supply virtually every computer chip that goes in a cable modem or digital box. Our coverage on Broadcom is initiated at the current price of $83 11/16 with a three year target of $200 (before adjustments for anticipated stock splits). As noted below in our original report, our favorite stocks in this industry group includes 3COM and Proxim.
Original Research - New York - 3COM is a leading supplier of local area networks (LANs) and wide area networks (WANs) systems. It recently reorganized internal business units to target small and midsize businesses and individual consumers. 3COM took on the business reorganization because it found itself unable to compete with firms such as CISCO and LUCENT who are increasingly focusing on large businesses.
With revenue soft and business difficulties surrounding the company, holders of 3COM stock have watched their value plunge from a 52 week high of $51 to a low of $20. The Company believes that its focus on home and small business networking products, particularly wireless area networks, will position the company to the forefront of a new computing era. This era will consists of hand held Internet enabled computer appliances that connect to the Internet via a wireless network.
As 3COM attempts to reposition itself - it finds itself involved in takeover speculation. SIEMENS and ERICSSON have apparently expressed interest. These rumors have sent the stock up from $20 to a current value of about $25 (on the date of this report 4/18/99).
Despite this increase, our analysts believe that 3COM (COMS) is currently undervalued. The underlying business, despite softness, appears to be healthy. The markets for wireless-networks, home appliances and hand-held mobile computing products such as the Palm Pilot will grow significantly. It is not a matter of if but a matter of when. We believe the current price decline provides an ideal opportunity for an investor looking to increase or initiate a position in this fast growing arena. As far as takeover talks, we believe that 3COM is susceptible to being acquired. This industry will certainly be consolidated. In addition to 3COM, we believe small but established firms such as Proxim (PROX) and Telxon (TLXN) are susceptible to being acquired.
We expect 3COM to trade between $25 and $35 until business performance improves. Should acquisition talks continue, 3COM may trade higher. Our three year target stock price for 3COM is $80. An acquisition at anytime would provide additional returns.
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