Aurora, Ill.-Based Technology Firm's Stock Jumps 506 Percent in Last Year
Apr. 6 (Chicago Tribune/KRTBN)--Making the leap from scorned stepsister to Cinderella is no easy feat in the corporate world, and there's always that anxiety about what might happen when midnight rolls around.
But for the moment, at least, Westell Technologies Inc., is enjoying its evening in the limelight at the royal ball of high-technology performers.
In the past 12 months, Aurora-based Westell has seen its stock value jump an eye-popping 506 percent. The stock took a beating early this week, as did many other high-flying technology stocks, plunging a combined $9.37 a share on Monday and Tuesday. But Westell stock regained some lost ground on Wednesday, closing at $25.75 on the Nasdaq composite market, up $3.25 a share.
The key to Westell's success, said Marc Zionts, the company's chief executive, is its pioneering role in developing digital subscriber line technology that converts ordinary copper phone lines into high-speed Internet connections.
DSL is very hot right now as phone companies scramble to compete with cable TV systems to be the ones to bring high-speed Internet service to residential homes. San Antonio-based SBC Communications Inc., Ameritech's parent, is spending $6 billion over the next three years to put DSL into its network, for example.
"We've been talking about DSL for a long time," said Zionts, "and early on nothing much happened and we lost credibility. Now that DSL is finally here, we've regained credibility. We're getting recognition that's reflected in our stock value."
A Westell competitor, privately held Charles Industries based in Rolling Meadows, isn't as impressed with Westell's story as the market appears to be.
"Westell is mostly riding on DSL buzz," said Joseph Charles, chief executive of Charles Industries. "The fact is there are lots of pressures on margin in our industry. To survive you have to keep coming up with new products and keep reducing your costs. Buzz alone won't do it."
Like many firms benefiting from high-tech buzz, Westell hasn't been profitable for years. But Zionts said that rapidly growing revenues should return his company to profitability later this year. He sees Westell as combining high-tech potential with old-fashioned profitability.
"People want growth, but they also want solid fundamentals, and that's our story," he said.
Telecommunications infrastructure in general is a very strong sector right now, said Polina Ialamova, a Chicago-based analyst with Advanced Equities.
"Most analysts believe there will never be too much broadband infrastructure," Ialamova said. "Carriers are racing to buildout networks and the companies the provide equipment to make those networks operate have prospered."
But while many infrastructure companies are solid and somewhat boring, a few, like Westell, have sought to add some high-tech gloss to their image.
Westell, which was founded in 1980 as a decidedly unglamorous maker of nuts-and-bolts telephone infrastructure equipment, branched out into DSL in the early 1990s under the enthusiastic leadership of Gary Seamans who preached the potential of turning puny old copper phone lines into broadband "information pipes."
Seamans' original vision was to use phone lines to carry video so that telephone companies could offer interactive television to their customers. He made deals with AT&T Corp. and Bell Atlantic Corp. to develop the technology, but the air went out of his plans when market support for interactive television collapsed.
Seamans was undeterred, however, and repositioned Westell as cashing in on the growing popularity of the Internet by turning the WorldWideWait into an information speed demon. The money Seamans invested in developing DSL hurt Westell's profitability, but it also established the firm as a potential market leader.
After taking the company public in 1996, Seamans saw Westell's stock soar for a brief period. Soon, however, the stock price went into a decline, as the promised DSL boom failed to materialize. After Seamans experienced health problems, Zionts was brought in to rejuvenate the company.
As part of the turnaround, Zionts last year merged Westell with Teltrend Inc. of St. Charles, another phone equipment supplier, and that deal has helped to shore up Westell's fundamentals, he said. But the real spark in the firm's stock successes has been its DSL position.
Another Chicago-area phone equipment supplier uninvolved in DSL, Orland Park-based Andrew Corp., saw its own share price rise a relatively modest 85 percent in the past 12 months. Floyd English, Andrew's chief executive, said the current DSL boom is definitely behind Westell's current success.
Andrew, which specializes in infrastructure for wireless phone systems, is working to develop products to carry so-called broadband wireless signals that could one day compete with wireline DSL, but most of the impact from that play will be felt in the future, English said.
The key to Andrew's own recovery with investors has been a general rebound of economies in Asia and South America. As a global firm Andrew was hurt in the recent past by problems in foreign economies, English said.
The firm also suffered from the decision by several wireless phone companies in the United States to sell their towers to third parties to operate. That along with consolidation among wireless operators caused a slowdown in infrastructure buildout that hurt Andrew.
English said that it was difficult for investors to understand his firm's sagging revenues at a time when wireless growth among consumers was booming. But those problems apparently are over for now and Andrew expects many more months of growth. Even so, the firm also sees margin pressures mentioned by Charles.
"Sometimes you'll have one company now that a few years ago was four different companies," said Chuck Nicholas, chief financial officer at Andrew.
"Now to that company the order its making is four times as big as it was and they expect a volume discount," he said. "But to us, there's no increase in business because we had that business before, spread around over more companies. So we have to cut our costs to survive."
And Westell's Zionts agrees that while tech buzz is nice, in the final analysis, taking care of fundamentals is essential to long term success.
Still, said Zionts, "Westell is a hot Chicago company again. And that feels pretty good."
By Jon Van
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