Updated Pacific Growth Equities Report Issued...
I called and confirmed with S. Olson that he had released an update today. Here is an alleged copy of it from RB. Let's all try to confirm it...
By: Nyland
Reply To: None Tuesday, 27 Jul 1999 at 11:54 AM EDT
Post # of 55515
WAVX, New Research report posted from Buy Side shop in San Fran:
Pacific Growth Equities (Olson, Stephen 4152746880) WAVX
July 27, 1999
Wave Systems Corp.
Steve Olson, CFA
(415) 274-6880
WAVX: What's Next For Wave
WAVX: Nasdaq
Strong Buy
YE99 Target Price: $32
Price $12.38
Price Range $2.25-29
Shares (millions) 38.1
Market Capitalization (millions) $471
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
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)
Summary and Investment Recommendation:
* Examining Wave's business model, we believe that several key pieces are in
place. Wave has significant agreements on the technology, security/applications,
and content fronts. PC deployment is now the key driver in our opinion.
* Over the next few months, we believe that Wave will put in place agreements
that imply significant PC deployment. Possible partners include chip companies,
PC and PC peripheral vendors, set-top box vendors, ISPs, and broadcast
companies.
* We believe that upcoming deals will signal strong endorsement of Wave by key
deployment partners and provide a powerful catalyst for the stock. With the
stock trading at less than 50% of recent highs, we are therefore reiterating our
STRONG BUY rating and $32 year-end price target, which could prove to
conservative depending on the magnitude of upcoming deployment deals.
* Details
As we outlined in our initial report on July 9, we believe that Wave has
gathered a critical mass of content and technology partners to bring EMBASSY
into production and to support the Wave Direct content distribution service. In
our view, the critical next step is to win the endorsement of major deployment
partners with broad reach into the PC marketplace. Over the next three months,
we expect Wave to announce significant progress on this front. The goal is to
build a multi-million user network to which the Company can deliver its Wave
Direct software service as well as other content, networking, and transaction
services from Wave and from third parties.
To date, Wave has two deployment agreements. Hauppague Digital's WinTV Theater
product began shipping in June, and Actiontec should ship product by the end of
the year. We view both of these deployments as proof-of-concept validations
given their relatively small scale. Over the next few months, we believe that
Wave will put in place agreements that imply much wider PC deployment. The
following is our speculation on what some of these deals may look like.
PC component makers and OEMs We believe that Wave makes a logical partner for PC
component manufactures looking to increase their value-add as demonstrated by
the agreements with Standard Microsystems, ITE, and Atmel. In particular, we
believe that AMD needs to response to the moves Intel has made this year to
address security in hardware. Unlike Intel, AMD does not have in-house or
affiliate technology to do so. Supported by the recent acquisition of N*ABLE,
Wave becomes the obvious choice if AMD were to pursue a security co-processor
strategy that would allow it to leap-frog Intel's current and planned
capabilities.
Also, we believe that the rapid emergence of "free PC" initiatives over the last
two months makes Wave endorsement by a major PC OEM more likely. Nearly all of
the recently announced initiatives subsidize the PC cost through ISP revenue,
the largest follow-on revenue stream for consumer PCs (about $10 billion
annually). Wave Direct would allow companies to tap edutainment software sales,
the second largest revenue stream (about $6 billion annually). In addition,
Wave's technology would give service providers control over the PC during the
contract period, i.e. it would enable the service provider to turn off the PC,
online or offline, if the contract obligations are not satisfied.
PC peripheral manufacturers We believe that Wave is in dialog with several
peripheral manufacturers, some of which may result in deployments before
year-end. Wave's EMBASSY system can be embedded in a variety of peripherals
including add-on cards, game pads and joysticks, modems, and keyboards.
Broadcast networks Efforts are under way to deliver the Internet to PCs over
both terrestrial and satellite broadcast networks. AOL's recent $1.5 billion
investment in Hughes Electronics, owner of DirectTV, marks AOLs push for a
broadband path to PCs over satellites. Also, the deployment of digital
television (DTV) terrestrial data broadcasting infrastructure is under way, with
the start of digital broadcasts in the top 30 markets due by year-end.
In April, Wave and Sarnoff Corporation announced the formation of inTelecast to
provide infrastructure and content services for DTV data broadcasting to PCs.
inTelecast's service will allow delivery of content such as games, music,
corporate data, or Internet pages up to 300 times faster than a dial-up
connection, delivering over 100 gigabytes of content to the consumer desktop
every day. Given the combination of Sarnoff's respected position in the
broadcast industry with Wave's technology and IP covering data broadcast, we
believe that inTelecast provides a compelling turnkey solution for the major
networks (ABC, NBC, CBS, Fox).
Investment Recommendation
We believe that upcoming deals will signal strong endorsement of Wave by key
deployment partners and provide a powerful catalyst for the stock. With the
stock trading at less than 50% of recent highs, we are therefore reiterating our
STRONG BUY rating and $32 year-end price target, which could prove to
conservative depending on the magnitude of upcoming deployment deals.
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
judgement 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 any company contained 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.
First Call Corporation - all rights reserved. 617/345-2500
END OF NOTE
Symbols:
US;WAVX
Source FCI - First Call International
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