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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: AnnieO who wrote (60952)	9/13/1999 1:01:00 PM
From: puborectalis	Read Replies (1) \| Respond to of 120523

Fantastic article today on COVD...........Stock of the Day Sep 13, 1999 Covad Communications: Big Potential in DSL Covad Communications (Nasdaq:COVD - news) delivers the goods, the Internet goods. It's the leading provider of high-speed broadband digital subscriber line (DSL) services to Internet service providers (ISPs) and business enterprise customers. In other words, it sends the Net info fast over copper wires. Currently, Morgan Stanley estimates the DSL market to be about $400 million. By 2002, they think it will reach $7 - $8 billion. That represents big potential, especially if a company is already the leading provider in the market. But as always, there's many a slip 'twixt cup and lip. Covad has a great opportunity, and they've got a good start in a booming industry. Whether it translates that into profits and growth is the challenge. It certainly has two important elements already in place. The first one is its management. The President and CEO, Robert Knowling, Jr., previously was Exec VP at US West where he had 30,000 employees responsible for delivering quality telecommunications service to 25 million customers in 14 states. The Vice President of Engineering, Rex Cardinale, designs Covad's network architecture and operations support systems. Before this position, he was the CEO and VP of Engineering at GlobalCenter Inc, a Net service provider for small businesses. Exec VP of Sales, Chuck Haas spent 14 years at Intel in sales and business development. Catherine Hammer joined the company from US West as VP of network reliability. She's the President of Covad's Network Services, with the mission of delivering consistent, high-quality services and support to customers. Two other key executives had previous experience at Morrison & Foerster, Intel, and Leasing Solutions, Inc. Mike Milken used to say that there has never been a shortage of capital, only good managers. For a new company to boast this much depth in its management, it's obvious that there is strength in the executive offices that belies the age of the company (it went pubic in January of 1999). The second factor in the company's favor: first mover advantage. Just like Amazon (Nasdaq:AMZN - news) and America Online (NYSE:AOL - news) , the first company to move in a big way in a new field often gets the most market share because of its name recognition. By being first, Covad is the recognized leader in the market it serves. It also gets these benefits: - Significant colocation space with the established local exchange carriers - Experience to effectively provision complex DSL installations - Key ISP relationships and reseller agreements Covad's market penetration is extensive. It has colocated in 534 central offices, more than any other DSL provider. Expectations are for 1000 colocations by year-end 1999. That puts them in 22 metropolitan regions, 51 metropolitan statistical areas, which represent 26.3 million homes and 2.6 million businesses. Furthermore, Covad offers three types of DSL: asymmetrical, symmetrical, and integrated. Each has a different speed capability and price. Revenues have ramped quickly. In the first quarter of 1998, the company had $186,000. In the second quarter of 1999, it brought in $10.8 million, almost 60 times more. Morgan Stanley expects revenues to be $56 million in FY 1999, and $163 million in FY2000. Covad is fully funded for its initial expansion plan to cover 51 metropolitan statistical areas. That's expected to be complete by the end of 2000. However, the company is not expected to be cash flow positive until 2003. But, like all investments, there are risks. Probably the biggest one has to do with the local telephone companies. Covad relies on them for access to their central offices and network facilities. Regulations compel the phone companies to do this, but if the phone companies aren't competent, or technologically ready, then Covad's services can't be delivered. Furthermore, the economics of DSL service are powerful. In other words, it's very profitable after the initial installations. That always attracts competition. Right now, the market is supply constrained, meaning that Covad can't get to enough customers fast enough. Everybody wants DSL service. That's not unnoticed by regional bell operating companies who already offer T1 lines or limited DSL service. There's always the chance the regional bells will lower their prices on T1 lines or DSL to defend their revenue base against Covad or other providers. So look for pricing pressure on Covad's services. This is not the kind of stock that allows for normal analysis. There are no earnings, and won't be for some time. But this company warrants attention because it's in an enviable position: supplying a service that almost everyone wants. Covad is running as fast as it can to provide it. - Ted Allrich The Online Investor --------------------------------------------------------------------------------