The Trader, Part 2
The Trader, Part 1
Globalstar Telecommunications has had a rude awakening. The company,
which promises global phone service via satellite, saw its shares soar to a high
of 53 3/4 on January 3. Since then, they've thudded to earth, closing at 23 on
Friday.
The runup was helped by a favorable mention Globalstar received in the Gilder
Technology Report. The newsletter has gained a reputation for picking tech
home runs, like Qualcomm.
Globalstar's
shares
turned
south
as
investors
concluded
that
the
company
was
reducing
its
2000
forecasts.
Last year, it indicated that one million handsets for its system would be
produced in 2000. The target fell to 600,000 in November and to 450,000
this month, owing to manufacturing delays at Ericsson, one of three companies
that make Globalstar phones.
However, the company's manufacturers have managed to boost production,
and the latest estimate is 580,000. "We think we are on a very firm course to
achieve our 600,000 goal by yearend," says Bernard Schwartz, CEO of Loral
Space & Communications, which owns 45% of Globalstar.
The shares also were hurt by a shift in investor sentiment. Last year, bulls on
the stock believed that Globalstar could sell all the handsets that could be
produced. Now there are doubts about demand.
Investors have demanded to know the number of handsets sold so far. But the
company says such information would have to come from its partners, who sell
the handsets. Instead, Globalstar plans to disclose how many minutes the
system was used in the first quarter. But the data won't be released until
sometime after March.
A final concern revolves around how long it will take for the company's
operations to be global, says John Coates, equity analyst at Salomon Smith
Barney. He downgraded the stock to "buy" from "outperform" in October and
has a target of 26 on it.
Different companies, known as gateway operators, are in charge of providing
Globalstar service in different areas of the world. The gateway operators need
to coordinate their operations so that a U.S. user can get service in London,
for example. But thus far, the gateway operators haven't coordinated billing
and technical issues and U.S. users can operate their phones only in the States.
However, says Schwartz, "We expect the issue will be resolved and
agreements will be made between the service providers in coming months."
Luckily, the company has a nice cash cushion, having sold 8.05 million shares
at $35 apiece in a secondary offering last month.
Sentiment remains sharply divided. "We think the business model makes no
sense," says Greg Hymowitz, a principal at Entrust Capital, who also happens
to be short about 110,000 shares at an average cost of 24 1/2.
But there are a number of investors who think the bonds, which trade in the
mid-50s, are attractive because they expect the company to survive.
Just as companies don't generate their own electricity, in the future they won't
handle their own data. That's the prediction of Edward Kerschner,
PaineWebber's equity strategist, who put out a report last week dubbed
"Building the Info Utility Industry." Outsourcing data management "allows
companies to narrow their focus on the businesses they're in. Right now, every
CEO has to worry about data processing, in addition to making widgets," he
says.
The accompanying table lists Kerschner's top picks of potential beneficiaries
from this "info utility" phenomenon. Making the cut were advisory companies
such as Electronic Data Systems, which will show others just how to outsource
data. Companies like Digex will provide customers with their own individual
server, while those such as Exodus will let a company take its existing
equipment and move it to an Exodus location where it can be supplemented.
Finally, those such as Verio let smaller companies share servers.
Once companies have outsourced their information, they'll need more
bandwidth to transport information, which leaves MCI WorldCom and Qwest
Communications well-positioned. Meanwhile, to access information through
the Web, consumers will use companies such as America Online. And
software written by companies such as Oracle can put the information in a
Web format.
Among equipment providers, expect server manufacturers, such as Sun
Microsystems and IBM, to enjoy growth. Likewise, Intel makes the chips in
the servers and has said that, over the next two-to-three years, it will invest $1
billion in 12 service centers where it will provide application services to clients.
Look for the makers of printers to be in good stead, as the paperless office
remains science fiction. Hewlett-Packard should fare well, along with
networking and telecom companies such as Cisco Systems, Lucent and Nortel
Networks. Nortel expects the demand for network capacity to grow 100-200
times over the next two years, driving the need for further capital spending.
And finally, there's the computer, which Kerschner believes will still be our
main vehicle for getting on the 'Net. His pick: Gateway, which recently struck
an alliance with AOL. Then, of course, there are those providing access to the
World Wide Web: AT&T, Comcast and Hughes Electronics.
Many of these companies already sport lofty price-to-earnings ratios. But
Kerschner believes the multiples are justified by their high growth rates and his
outlook for 2% average annual inflation.
Last week saw the launch of the Dow Jones U.S. Total Market Index, which
represents 95% of the stocks in the American market. Stocks in the top 70%
of the universe are part of the index's large-cap segment; those in the next 20%
are considered mid-cap; the remaining 10%, small-cap.
"Rather than maintaining a fixed number of components, as do many widely
used benchmark indexes, the DJTMI-US provides ongoing 95% coverage of
the U.S. market," the company said in a statement. "This fixed percentage
approach ensures near complete representation regardless of changes in
market size."
The new index, which appears in the Market Lab section, affects various areas
of Barron's.
In the Market Laboratory in our statistics section, the new U.S. Total Market
Index replaces the Dow Jones Global-U.S. Index, which represented only
80% of the American market. In the same section, the new index will affect
data in "The Week In Stocks" table.
The "Dow Jones Industry Groups" table has been discontinued. It has been
replaced with the "Dow Jones Total Market Industry Groups" listing, based on
the new index.
Going forward, the "Dow Jones Specialty Indexes" table, also found in the
Market Lab section, will add three subgroups: Dow Jones U.S. Large Cap,
Middle Cap and Small Cap. And finally, the indexes in the "Vital Signs" table
that accompanies this column will reflect the changes in the Dow indexes as
well.
E-mail: jacqueline.doherty@barrons.com |
