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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: Jenna who wrote (73046)	11/23/1999 2:13:00 PM
From: kendall harmon	Read Replies (1) \| Respond to of 120523

PWAV--here is Motley FOOL analysis <<Merchant wireless base stations power amplifier supplier Microwave Power Devices (Nasdaq: MPDI) provided investors with an unexpected early morning jolt today by warning that it sees revenues and earnings per share falling below analysts estimates in the current Q4 and for the full fiscal year 2000. Lower than expected revenues and gross margins from the company's core wireless telecommunications product lines were blamed for the poor performance. Traders took little mercy on the Hauppauge, New York-based firm, cutting its share price in half in early trading. For Q4, MPD is forecasting a loss between $0.03 and $0.05 per share, far below the First Call mean earnings estimate of $0.22 per share. Likewise in fiscal 2000, the company is expecting EPS between $0.20 and $0.25, a fraction of the $0.82 that analysts had been expecting. Using the best case scenario, the company's guidance translates into 25% earnings growth over the next year, well short of the 80% profit growth that had been previously modeled for 2000. The ratcheting down of the heady growth expectations was the major anchor on the stock today, which has had a rough go of it in recent months. During the first half of this year, MPD had been keeping pace with the rising tide that was also lifting the stocks of the merchant base station power amplifier triumvirate, sending its shares up nearly 50%. Since then, major rivals Powerwave Technologies (Nasdaq: PWAV) and Spectrian (Nasdaq: SPCT) have watched their share prices continue skyward and double, while MPD's shares have gone nowhere. Today's news changed that trend, but in the wrong direction for MPD shareholders. Roughly 70% to 80% of the $1.3 billion base station power amplifier market is controlled by the major wireless infrastructure companies such as Motorola (NYSE: MOT) and Ericsson (Nasdaq: ERICY), which develop their own products in-house. The general trend started by firms like Lucent (NYSE: LU) and Nortel Networks (NYSE: NT) is toward farming out more of this business to merchant suppliers such as MPD, although this is developing fairly slowly. As wireless usage charges fall and more customers come onto the networks, the general consensus is that the large wireless equipment firms will look increasingly on the merchant suppliers for their power amplifier needs. That thesis goes a long way to explain the aggressive growth that had been expected from MPD. MPD, Powerwave, and Spectrian have split the sliver of the market for merchant manufacturers among them, but not equally. Of the three firms, Powerwave has shown the most business momentum this year and is starting to fully position itself as the company to beat. Through the first nine months of this calendar year, Powerwave's revenues were $201 million compared to $74 million for Spectrian and $53 million for MPD. Year-over-year revenue growth over the same span showed Powerwave dusting its rivals and taking market share with 235% growth versus 12% growth for Spectrian and 39% growth for MPD. The market share gains have produced major variations in the three firms' statements of cash flows, which show Powerwave using its higher operating cash flows to pay down debt and build a cash hoard for future investments. Meanwhile, MPD has been relying on long-term debt and bank loans to keep its business going this year, while Spectrian has mainly issued stock and relied on its cash reserves. Financing considerations will be a major issue for investors trying to pick winners in this industry, as all three major merchant suppliers are pouring a ton of cash into research and investment in order to make sure their products stay technologically relevant to their telecom equipment customers. The R&D surge serves the purpose of not only legitimizing the outsourcing business in the eyes of the telecom infrastructure companies that are at once the merchant suppliers' rivals and main customers, but also keeps the companies ahead of the curve amid the impending emergence of 3G wireless technologies. With MPD struggling, Powerwave looks better positioned than ever to continue to take market share and extend its lead even further in merchant power amplifiers. That's potentially bad news for not only MPD but also Spectrian, which does not appear to have the financial capacity at this point to withstand a two-way race with the surging Powerwave.>>