SAN DIEGO--(BUSINESS WIRE)--Oct. 21, 1999--
INTERNET STOCK NEWS: Oct. 21, 1999
''Digital Subscriber Line for Investors'' by A. Sahoo, ISN Writer
Also available on the Web at
internetstocknews.com
With 100 million Internet users now, many of them ''Web warriors'' -- users who spend many hours online each day -- demand is increasing exponentially for high-speed Internet service that will quickly deliver memory-rich applications.
Digital Subscriber Line (DSL) service, which is 30 to 50 times faster than the 56K modems that most tech-savvy Web surfers now use, offers the solution. While the traditional telco service and equipment companies -- the Regional Bell Operating Companies, Lucent (LU), Cisco (CSCO), 3Com (COMS), Ericsson (ERICY), IBM (IBM), Siemens, Dell (DELL), Nortel (NT), Hewlett-Packard (HWP) -- are also expanding into DSL, a growing number of companies specialize in DSL.
One interesting way to play this market is to invest in companies that develop the core DSL technology -- Aware (AWRE), Alcatel, Orckit Communications (ORCT), Pair Gain (PAIR) and Amati/Texas Instruments (TI). Among this group, Aware's licensed DSL-enabled chipsets, modems, PCs, access routers and transceivers are built into more than half of all DSL equipment used. They are appealing since they allow phone companies to upgrade existing transmission lines without replacing wire, while enabling end users to access the Web faster. AWRE's strategy has been to license its technology to the semiconductor manufacturers who build it into the DSL-ready integrated circuits used by equipment manufacturers. At present, just about every regional bell operating company and major ISP is installing DSL capability.
Unfortunately, AWRE's stock price hasn't reflected its revenue growth or the rapid acceptance of its technology. While Q1 '99 sales grew 115% to $4.3 million, of which licensing fees amounted to more than $700,000, it has retreated to its December '98 price of $25, after hitting a high of $87 in April. Since August, in fact, when AWRE hit an interim peak of $60, it has been on a steady decline. Orckit, on the other hand, has been on an up trend since August. Its revenues have also been rising dramatically -- 76% to $30.7 million for the first half of this year -- along with its stock price. Since August, ORCT has moved from $25 to $37, as 3 analysts (Kaufman Bros, Josephthal Lyon, Merrill Lynch) initiated coverage.
Service providers are also emerging, including newly IPO-ed DSL.net (DSLN). On Oct. 6, DSLN debuted at an issue price of $7.50. After a brief run to $10, shares have settled in the $8.00 - $8.50 range. DLSN's objective is to ''become the leading provider of DSL-based services to small and medium sized businesses in second and third tier cities throughout the United States''. As of June, DSLN had equipment installed in 22 cities, and hopes to expand this base to 60 cities by year-end. With 1998 revenue of just $31,000 against losses of $2 million, the jury's still out on this one.
Even with a hot technology, however, investors can still experience unpleasant surprises. Take late September's InterSpeed (ISPD) IPO, for example. This manufacturer of DSL -enabled equipment was spun off by a healthy parent, $100 BrookTrout Technologies Inc. (BRKT), at an issue price of $12. ISPD opened at $19 and finished the next several trading sessions robustly at $24 and $22. Everything looked rosy until ISPD plunged 7 points on the morning of its 9th day, on news that shipments totaling $330,000 would be delayed, causing quarterly revenue to fall below expectations to approximately $625,000. A month later, ISPD remains in the $12 - $13 range. The moral of this story is that even in a hot market, the nature of a fast paced industry can cause product delays and other events that can severely derail even what seems to be a healthy stock.
DSL technology offers the high speed Internet access that an exponentially growing customer base wants and needs. But, it is a new technology that is only now starting to be considered viable and not all of the companies developing it offer good investment opportunities.
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