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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: kendall harmon who wrote (71099)	11/12/1999 11:21:00 AM
From: Jenna	Respond to of 120523

Stocks in Focus Nov 12 1999 9:00AM Stock called out November 8 BEFORE the rise... up 20 points since the 8th. 2> PROX - PROXIM INC .TES Price= 43.4 VL/30= 34.8 %Rnge= 95.0 Sto9V= 46.0 W14dV= 51.7 %Hi4 = 92.6 1-Dy = 109.2 50MA = 99.9 10MA = 101.1 Can PROX Continue to Grow? by Charles Rotblut, CFA Shares of Proxim, Inc. {PROX} have traded upward this week as industry analysts speculate that the company could be a takeover candidate. Making LANs Wireless Proxim is a manufacturer of wireless products for local area networks (LANs), particularly spread spectrum RF transceiver modules and wireless adapters. Approximately 92 percent of the company's revenues are generated from products based on 2.4 GHz frequency hopping spread spectrum technology. Targeting this market is PROX's RangeLAN2 product family which is comprised of "OEM design-in modules" and packaged "off-the-shelf" products. OEMs incorporate the design-in modules into handheld computing and data collection devices. Packaged goods, which include PC cards, desktop ISA boards, Ethernet and serial external adapters, are designed for use with laptop and desktop computers to create ad hoc wireless networks and existing enterprise networks. A newer product family, Symphony, that is targeted to the home and small office market includes a cordless ISA adapter for desktop PCs, a cordless PC card adapter notebook and sub-notebook computers, a cordless V.90 56k modem, and cordless Ethernet bridge that allows for broadband connectivity. The company also offers 900mhz products such as RF transceivers and wireless LAN adapters. Proxim completes final assembly and a limited amount of manufacturing internally and relies on third-party suppliers and manufacturers for the majority of parts and components. The largest customers are OEMs that develop wireless solutions for industrial sectors such as manufacturing, warehousing, transportation, retail and value added resellers and systems integrators serving the healthcare, hospitality, education, and financial services markets. Additionally, Microsoft incorporates Proxim's software drivers into its Windows CE operating system. Two customers, Intermec and LXE, accounted for 41 and 11 percent of sales in 1998, respectively. PROX uses an internal sales force and relies on various distributors. The company operates in a highly competitive industry with direct, publicly traded competitors including Lucent Technologies {LU}, Symbol Technologies {SBL}, and Telxon {TLXN}. Financials Revenues for 1998 totaled $49.7 million, a 15.7 percent increase over 1997 revenues of $42.9 million. The growth was driven by higher sales of 2.4 GHz OEM products and RangeLAN2 branded products. Investors should note that 1997 revenues were only 4.2 percent higher than 1996 revenues - growth that barely exceeded the rate of inflation. Gross margins were down slightly in 1998 at 51.7 percent, but were within the company's historical range. Earnings per share were $0.42 compared to $0.01. Revenues for the nine months ended September 30, 1999 were $48.7 million, a 39.1 percent increase over same period a year earlier. Gross margins were 52.3 percent compared to 51.7 percent for the same period during the prior year. Cumulative earnings per share were flat at $0.34 because of a greater number of shares outstanding, 11.1 million versus 10.2 million. The September 30, 1999 balance sheet shows cash and short-term investments of $89.4 million and no long-term debt. Cash flow statements for this period were not released. Risks and Rewards Proxim is depends heavily on a few customers and predicts that sales to a limited number of OEMs will continue to account for a significant portion of total revenues in the future. The loss of, or a decrease in orders from any of these customers, particularly Intermec and LXE, would likely cause a material decline in the stock's price. Furthermore, PROX relies on single suppliers for certain circuits and circuit boards. This reliance could cause the company to be unable to fulfill customer orders should a problem with securing parts from these suppliers occur. On October 27, the stock was added to the S&P SmallCap 600 Index, which is notable not only because of the required purchasing from index funds, but also because certain institutional buyers will not consider a stock if it is not listed on the aforementioned index. This could likely reduce the amount shares actually available for trading, which are already limited by the small float of 6.9 million, and increase volatility. Cisco Systems' recent purchase of Aironet has led to some industry analysts suggesting that Proxim could be a potential takeover candidate for Nortel Networks or Lucent Technologies. This speculation has been reflected in PROX's stock price which has risen 29.5 percent over the past three days. Not surprisingly, this run has resulted in the stock exhibiting signs of overbought conditions - as is evidenced by the stochastics score of over 75. This suggests that over the short-term, the stock is likely to pull back to initial support at $58 before continuing its most recent upward trend. Longer-term, the company should benefit from higher demand for wireless products, but needs to prove that it can continue to grow revenues at a brisk pace amidst intense competition.