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Technology Stocks : Aware, Inc. - Hot or cold IPO? -- Ignore unavailable to you. Want to Upgrade?

To: Scrapps who wrote (7798)	2/25/2000 10:11:00 AM
From: Bobo	Read Replies (2) \| Respond to of 9236

"Charles Pluckhahn from Stephens Inc. says they calculate a royalty of about $2 for each ADSL connection enabled by an ADI chip. " Is that $2 / chip (meaning each side or $2/ connection (meaning $1/chip)? One way to look at it Scrapps is on the basis of Aware's royalty for 1999 vs some guesswork on ADI. For 1999, Aware's total royalty revenue was $4.3mm. Now the following sensitivity analysis: ADI as % of Royalty ADI Chip shipments per chip to Aware 100% 1.5mm $2.86 100% 1.0mm $4.30 100% 0.8mm $5.37 80% 1.5mm $2.30 80% 1.0mm $3.44 80% 0.8mm $4.90 70% 1.5mm $2.00 70% 1.0mm $3.00 70% 0.7mm $4.30 So the range from ADI is $2 to $5.37 per chip. My guess is about $3.44 or about 10% of ADI's ASP. If the DSL chipset industry is $1bb, comparable to the modem market several years out, Aware does $100mm in rev if they get 100% of the market. Assuming fully taxes, this is $2.50 per share. My eps estimates are grossly oversimplified and assume that royalty is pure profit and that other gross profit streams cover overhead. OK, now the bear case, I suspect this royalty relationship with ADI is the best they can do and that pricing pressures will force Aware customers to eliminate Aware's royalty over time and the best Aware will do is 5% on a half of the market. This is $.62 eps on a mature growth rate. The reality of it is that the bear case means pure squat in the current market. The wild cards for Aware 1)are the ability to enforce their patents on the industry and how much they could extract from this and 2) can Aware duplicate their success in other markets.