INPH new competitor for BRCD read this story....
Friday Feature: Fibre Channel Fortunes
By Brian Duhn, ZacksNEWS reporter. Friday Nov 12 1999
"Today's leaders might not necessarily be tomorrow's winners when its all said and done," said Morgan Keegan analyst Robert Montague in reference to companies competing for a piece of the rapidly growing Fibre Channel market.
"But strong sales trends across the board in this space suggest higher multiples going forward."
It appears as though the strongest, more established players will win the fight for Fibre and reward investors who bought into the buzz early and are getting into undervalued opportunities before the smart money has a chance to put players out of reach for the individual investor.
"Companies that have the vision, the products, the customers, and [finally], the earnings, will become leaders and significantly benefit from the growing demand for Fibre Channel products" said Bill Gramas, an analyst at Irvine, California-based L.H.Friend.
Fibre Channel, technology that merges high-speed connections and networking functionality into one reliable, cost-effective information storage solution, has become the de facto standard for the emerging Storage Area Network (SAN) market.
"Even though many of the Fibre Channel players have soared to new heights of late, investors in the high-growth [SAN] market can still uncover compelling opportunities," said Montague in reference to those who are looking for undervalued turnaround stories.
Worldwide revenue from SAN products, which help reduce the total cost of ownership of data storage environments while improving network efficiencies and performance, are expected to grow to $13.3 billion in 2002 from $2.5 billion in 1998 according to market researcher IDC.
"And even though this [SAN] sector has finally gotten on track over the last six to twelve months, and we're finally starting to see very strong sales trends across the board, we're still in the very early stages of growth," said Montague.
"The increased reliability and scalability associated with SANs products should result in a substantial ramp in revenue over the next few years," according to analysts polled by Zacks.
Follow the leader or follow the under-followed?
"Widely followed" leaders such as Brocade Communications (BRCD) and Emulex Corp. (EMLX) , both of which are followed by seven analysts, have tacked on billions in market value over the last twelve months while "under-followed" competitor Interphase Corp. (INPH) has yet to reach its first billion.
In fact, established Interphase, in business since 1974 and publicly-listed on NASDAQ since 1984, is profitable and on pace to potentially generate more revenue this year than both BRCD ($24.2M) and EMLX ($68.5M) combined for in sales in their last fiscal years.
San Jose, CA-based Brocade, with a market cap of $7.5 billion, is the dominant maker of SAN switches, while Costa Mesa, CA-based Emulex, which enjoys a market valuation in excess of $3 billion, is the leading provider of adapters for SAN systems.
Interphase, the first company to offer switch neutral compatibility, the first to publicly demonstrate Asynchronous Transfer Mode (ATM)-compatible Local Area Network (LAN) Emulation, and one of the first companies to begin shipping ATM adapters (1994), has a market capitalization of $195 million, or 1/37th the size of Brocade.
Brocade lost more than 11 points on Friday, closing at $279 23/32 a share or down about seven percent over the last five days, while Emulex gained 1 « to $180, closing relatively flat for the week.
Dallas, Texas-based Interphase gained 2 5/8, or 8.2 percent, to close out the week at $34 7/8. INPH shares finished the week up around 30 percent as more than one million shares traded hands for the second time in five days, almost four times its average daily volume.
The Bottom Line
On October 21, the company reported third-quarter earnings of $0.20 per share, growing its bottom line 77 percent over results of $0.13 reported in the same period a year ago.
Third-quarter Fibre Channel revenues increased 368 percent year over year, grew 78 percent sequentially from the second quarter, and have moved Interphase into the number-two spot in Fibre Channel revenues among companies specializing in Fibre Channel host bus adapters.
The Nail in the Coffin
The real driver for Interphase could arrive sooner rather than later. This coming week, Interphase will demonstrate their key Fibre Channel technology initiatives along with partner IBM (IBM) for all to see at Comdex/Fall '99 in Las Vegas.
IBM, which accounts for more than 72 percent of Brocade's revenue according to Hoover's Online, has an alliance with Interphase that analysts say could possibly grow stronger after Interphase's appearance at the world's largest and most influential information technology event of the century.
"The product demonstrations at this year's Comdex show make it clear that we intend to deliver on our commitment to become the market leader in creating high performance connectivity solutions for SAN environments," cited Interphase President and CEO Greg Kalush in a company press release.
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Story Written By: Brian Duhn
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