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Technology Stocks : WAVX Anyone? -- Ignore unavailable to you. Want to Upgrade?

To: Wooly who wrote (8065)	7/9/1999 2:57:00 PM
From: Norman Klein	Read Replies (2) \| Respond to of 11417

Pacific Growth Report (thanks to Mighunter and others at RB) This was taken from a PDF file, so there might still be some non-graphical characters interspresed. Sorry about that, but if you want a nice looking version than you just have to wait for the printed hardcopy version. equity research July 9, 1999 The information contained in this report is derived from sources we believe to be reliable, but we make no representation that it is accurate or complete. Additional information is available. Any opinion in this report reflects our judgment at this time and is subject to change without notice. Pacific Growth Equities, its employees and affiliates may purchase, hold, or sell the securities of, or perform investment banking services for, any company included in this report. This report is not a solicitation of an offer to buy or sell any security. Pacific Growth Equities maintains a market in Wave Systems Corp. Pacific Growth Equities, Inc. Four Maritime Plaza San Francisco, CA 94111 Wave Systems Corp. Delivering E-services to PCs Steve Olson, CFA (415) 274-6880 solson@pacgrow.com WAVX: Nasdaq Strong Buy YE99 Target Price: $32 Price $15.50 Price Range $2.25-29 Shares (millions) 38.1 Market Capitalization (millions) $590 Average Daily Volume (000) 485 Revenue Operating P/E Year (millions) Margin EPS Ratio 12/98A $0.01 NM ($0.39) NM 12/99E $0.09 NM ($0.61) NM 12/00E $21.2 NM ($0.69) NM 12/01E $220.6 10.1% $0.45 38.8 Quarterly Earnings Year Q1 Q2 Q3 Q4 12/99E ($0.11)A ($0.12) ($0.18) ($0.19) 12/00E ($0.20) ($0.19) ($0.17) ($0.12) 12/01E ($0.05) $0.05 $0.16 $0.30 Chart Source: Nasdaq. Summary and Investment Recommendation: Wave Systems has developed a chip-based, client-side engine for electronic commerce and content distribution services. The Company's goal is to transform PC's and other network clients into secure platforms for the delivery of e-services from Wave and third parties. The primary service, Wave Direct, opens a new distribution channel for consumer software. Wave has agreements with several content providers, including Electronic Arts, GT Interactive, and Cendant, who are attracted to Wave Direct due to its flexible pricing models and direct contact with consumers. Wave's customer acquisition strategy targets hardware OEMs for wide deployment. Wave has announced partnerships with chip makers and hardware OEMs to embed the Company's technology on PC motherboards (Standard Microsystems, ITE), PC peripherals (Hauppague, Actiontec), and set top boxes (ITG). Through revenue sharing arrangements with Wave's content distribution services, the partners should be motivated to deploy on a wide scale. The first rollout was launched June 1 with Hauppague Digital's WinTV Theater product, a cableTV/radio/databroadcast receiver card for PCs. If successfully deployed, the Wave System entails a compelling revenue model for the Company. Wave Direct is basically a software e-tailing model, carrying approximately 25-30% gross margins for Wave after payments to content providers and distribution partners. Wave also has the opportunity to garner an array of additional fees, from advertising/merchandising, licensing/royalties, and transactions. We are initiating coverage of Wave Systems with a Strong Buy rating and a YE99 price target of $32. We believe that the Company has achieved significant momentum in a market that is ripe for its services. Given the compression in PC margins over the last year, the major PC OEMs are clearly recognizing the need to deliver services on their platforms. Also, Intel has stepped up its security initiatives, which could catalyze the entire PC industry to address security in hardware. Wave can provide a turnkey system that solves both issues. The key variable to our valuation analysis is deployment; we assume that Wave will have 4.7 million active customers by year-end 2001.