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Technology Stocks : Vari-L (VARL) -- Ignore unavailable to you. Want to Upgrade?

To: Chris Tomas who wrote (1467)	11/29/1999 12:50:00 PM
From: William A. Eydler	Read Replies (1) \| Respond to of 2702

Gotta like it, here is a good article by James Hale of the OLI Weekly newsletter. Gotta get the float up, hopefully through a stock split at around 30, with only under 6 million out there that will hamper growth, IMO Here is the article. What's Up Here? Vari-L (Nasdaq:VARL) is a very small electronics company that we've been following for about two years now. The stock has more than doubled in the last six months, and it just jumped 17% ($2.38) to $16.50 on nine times average volume on Monday. There was no news specific to Vari-L, but when a company's market cap is less than $100 million, all it takes is a little interest from Wall Street and institutional investors to get things cooking. Vari-L is not exactly a household name, but its customers certainly are. It supplies components to most of the heavy hitters in wireless communications including Lucent, Motorola, Nokia, Ericsson, and Qualcomm. Vari-L makes signal processing components used in wireless equipment, a fast-growing market with great long-term potential. Vari-L began the decade as a defense contractor, and it continues to provide components to the military for use in advanced radar, weapons guidance and navigational systems. But its pursuit of commercial market opportunities is really beginning to pay off now, as demand for its voltage controlled oscillators (VCOs) and other signal processing components is soaring due to their use in cellular/PCS, fiber-optic and satellite communications. In a nutshell, VCOs adjust the wireless signal to a predetermined frequency, a necessary step for any wireless transmission. The company dominates the market for VCOs used in base-stations for cellular and PCS, and now it is hoping to leverage its position in the much larger handset market. It has patents for low-power VCO design and production that position it well for subscriber applications like wireless phones and pagers. Vari-L is so small that it only has two brokerage firms providing earnings estimates. They forecast 25% growth in earnings per share this year and 30% annually over the next five years. The company has annual sales of approximately $23 million. Vari-L has invested aggressively in assembly line automation to increase production efficiency and capacity. Vari-L installed three new state-of-the-art assembly lines. As a result, Vari-L has shown significant improvement in its profit margins. Net profit margins are holding consistently above 14% now versus 11.5% in 1997 and 9.8% in '96. It looks like the investment in greater production efficiency and capacity is already paying off, but there's always a risk with this sort of capital spending. If demand should soften for whatever reason, some or all of that new equipment sits idle. That can be quite distressful for any manufacturer. The outlook for the wireless communications industry is so strong, though, that this doesn't seem like a meaningful concern these days. The company is 22% owned by management, and institutional investors own just 14% of outstanding shares. But with a market capitalization of less than $100 million, its tough for big institutional investors to get involved. Mutual funds, for example, typically have limits on the percentage of a company they can own. If sales do take off and the stock really is catching the attention of Wall Street, the big money can move a little stock like this up in a hurry. Unless and until that happens, though, all that investors have are a good story and a very volatile stock. Its beta of 1.62 means Vari-L has moved 62% more, up or down, as compared to the S&P 500. Average daily volume is growing, now at 86,400 shares compared to 51,700 a few months ago, but that's still pretty thin for institutional investors. Vari-L certainly has a compelling story, with the wireless communications industry expected to grow substantially in the coming decades. The company has already staked out an impressive presence in several segments of the signal processor market, and the biggest opportunity may be just around the corner--its low-power VCO for wireless handsets. Now it comes down to execution and gaining the attention of more on Wall Street. - James Hale