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Technology Stocks : Broadband Wireless Access [WCII, NXLK, WCOM, satellite..] -- Ignore unavailable to you. Want to Upgrade?

To: GVTucker who wrote (590)	8/12/1999 10:18:00 AM
From: SteveG	Respond to of 1860

DBAB - ARTT: Strategic Equity Investment Overshadows 2Q99 Results Deutsche Banc Alex. Brown - US Equities Bo Fifer,Jeffrey L. Hines August 11, 1999 --------------------------------------------------------------------------- ---- ADVANCED RADIO TELECOM CORP. [ARTT] "STRONG BUY" Strategic Equity Investment Overshadows 2Q99 Results --------------------------------------------------------------------------- ---- Date: 08/11/1999 EPS 1998A 1999E 2000E Price: 9.31 1Q (0.50) (0.63) (0.51) 52-Wk Range: 17 - 2 2Q (0.42) (0.72)A (0.59) Ann Dividend: 0.0 3Q (0.56) (0.60) (0.75) Ann Div Yld: 0.00% 4Q (0.57) (0.52) (0.52) Mkt Cap (mm): 593 FY(Dec.) (2.06) (2.47) (2.37) 3-Yr Growth: FY P/EPS NM NM NM CY EPS (2.06) (2.47) (2.37) Est. Changed Yes CY P/EPS NM NM NM --------------------------------------------------------------------------- ---- Industry: COMMUNICATIONS Shares Outstanding(Mil.): 63.7 Return On Equity (1998) : 0.0% --------------------------------------------------------------------------- ---- HIGHLIGHTS: -- Advanced Radio Telecom (ART) reported 2Q 1999 results yesterday (11- Aug) that were reflective of the "suspended animation" state ART entered prior to securing its strategic financing in June. -- Strategic equity investment by Qwest and other financial partners of $251 million takes ART from a regional (and financially shaky) to a nationwide data services play, and overshadows what we would term insignificant quarterly results. -- New "consecutive point to point" technology being tested in San Jose, with commercial deployment expected in 3Q 1999. We expect to get a clearer picture of network deployment plans and market opportunity from management soon--perhaps (maybe hopefully is a better word) at the San Jose open house later this month. -- NET-NET: Quarterly results are meaningless at this point for ART, which is now planning a 40-city nationwide data network on the heels of the Qwest investment. ART remains well positioned to be a major player, we believe, in the rapidly growing data/Internet services market. Maintain STRONG BUY rating with a 12-month price objective of $20/share based on our DCF. DETAILS: Advanced Radio Telecom (ART) reported 2Q 1999 results today (11-Aug) that were reflective of the "suspended animation" state ART entered prior to securing its strategic financing in June. The big news of the quarter remains the strategic financing deal with Qwest and a host of financial players announced 2-June for $251 million (please see our note dated 2-June for further details on the deal). The final step before closing--shareholder approval--is expected at the annual meeting on 8-Sep. We expect that the deal will close sometime in 3Q 1999, but do not expect to see significant ramp in subscriber or revenue growth until 2000. While the capital infusion may literally have been a life saver for ART, the company must now kick start its marketing and network construction efforts, which we believe could take the remainder of 1999 to accomplish. 2Q 1999 HIGHLIGHTS Actually, we were somewhat surprised to see revenue "only" $0.1M behind our estimate of $0.5M given our belief that operations were more or less shut down for the entire quarter. We believe it is way too early to begin measuring ART's performance relative to expectations, but for what it's worth: Metric 2Q99E 2Q99A 1Q99A Revenue $0.5M $0.4M $0.2M EBITDA -$6.6M -$8.9M -$7.4M Source: Company data, Deutsche Banc Alex. Brown estimates. NEW TECHNOLOGY GOING COMMERCIAL THIS MONTH ART constructed a beta system in San Jose to demonstrate the abilities of its "consecutive point-to-point (CPP)" technology, which serves multiple customer locations with 100 MB connections in a ring architecture. Commercial service is expected to begin in 3Q in San Jose, which will be ART's 4th commercial market. ART will also be hosting an open house in late-August to showcase the new network. Basically, the CPP architecture is to construct rings of customer buildings connected via ART's wireless spectrum. Each ring would be capable of carrying 100 Mbps of traffic, which of course would be shared among the customers on that ring. As demand picks up, ART would simply drop in more rings to relieve any capacity crunch, although with packetized data networks this is much less of an issue than in the circuit switched voice world. Qwest's local fiber should provide some/much of the backhaul for connecting the rings to the local switch. In fact, the beauty of packet data services is that multiple users in a specific location, say each requesting T-1 service (1.5 Mbps), can be served off of a single T-1 connection because of the burstable nature of packet data. In other words, pay network costs on one T-1, sell two (or three, or four, or ten) T-1s off that one pipe: that makes for fat margins. NET-NET Quarterly results are meaningless at this point for ART, which is now planning a 40-city nationwide data network on the heels of the Qwest investment. ART remains well positioned to be a major player, we believe, in the rapidly growing data/Internet services market. Maintain STRONG BUY rating with a 12-month price objective of $20/share.