If the techs are going to lead a rally I think it will be more communication related as opposed to chip makers. Chip info I have dug up does not paint a great picture for the next 3-6 months.
IPO uncertainties aren't just political
IPO Watch
November 16, 2000 12:00 AM PT
by Janet Purdy Levaux
Still no verdict yet on the U.S. presidential race, and the wireless world is equally ambiguous. Sure, lots of tech types at Comdex (maybe a few too many) are touting the latest gadgets and ways to get your wireless fix. But how it will all pan out is anyone's guess.
That's the backdrop for the soon-to-occur IPO of San Diego-based Novatel Wireless (NVTL). The company, which makes wireless modems and related software, plans to sell some 7 million shares at $10 to $12 each. Novatel's technology works with Palm's (PALM), Handspring's (HAND) and Hewlett-Packard's (HWP) handheld computers and devices. Novatel's Merlin type II modem for handheld computers costs about $230 and runs at 19.2 kbps. One version of Minstrel modems, which work with personal digital assistants, is priced at $328.
Company sales last year were up about 80 percent from a year earlier to roughly $10 million. Losses totaled $18.5 million. Novatel Wireless, which employs more than 200 people, received some financial assistance recently from Intel Capital. Clients include @Road, AT&T (T), Verizon Wireless, Keycorp (KEY), GoAmerica (GOAM) and OmniSky (OMNY).
What is the market saying about all the wireless hype? Take a peak at the stock of Novatel rival Sierra Wireless (SWIR), based up north in Vancouver, B.C. The stock closed down 2.31 percent Wednesday, at $58.81. Its 52-week trading range is $26.50 to $82 and it hit a high of $49.25 on its first day of trading on May 5. On the Canadian exchange, Sierra's 52-week range is roughly $C29 to $C232. It now trades around $C95.
Riding high on Verizon deal
Why -- in the U.S. market, at least -- are things looking upbeat for Sierra? The company recently announced that Verizon Wireless would purchase $30 million of Sierra products during the next 12 months. That deal alone gives the company a revenue base that's triple the size of Novatel's 1999 sales.
In the latest quarter, Sierra's revenue topped $15 million, up 160 percent from the previous year's results. Earnings per share, however, declined to zero from 5 cents a share in the same quarter of 1999. In the second quarter, the company had sales of $9.4 million vs. $6.1 million a year before. It lost 17 cents a share vs. a gain of 4 cents a share in Q2 1999.
Before Sierra inked its Verizon deal, Compaq (CPQ) said it would use the company's technology in its iPAQ Pocket PCs, which boast "full text and graphics" capabilities. After going public with its Verizon deal, Sierra promptly said its results next year would be above expectations. The deal with Verizon, which has a subscriber base of roughly 26 million people, should help Sierra earn $4.2 million on $120 million worth of sales in 2001. In the fourth quarter of 2000, sales should hit $18 million on net income of $270,000.
Novatel, of course, is busy pursuing deals of its own. Wireless data-services provider Aether Systems (AETH) said it's pumping $20 million into the company.
For its part, Aether is trading well below its spring high of $350. The stock closed down 2.01 percent Wednesday to about $106.75, roughly double its 52-week low of $50. HP, which showed off its wireless devices with Novatel Wireless modems at Comdex, is having its own problems. Earnings just came in well below expectations, sending the stock down sharply Monday. On Wednesday, it lost another 4.56 percent to close at $35.31, just $2.69 above its 52-week low.
Not all consumers are happy with the HP wireless products they've bought. One customer even started a class-action in June alleging that the company misrepresented HP's Jornada handheld's capabilities and the need to buy a separate modem. A judge in San Diego will hear the case on Jan. 19. Before Nov. 23, consumers can return HP Jornadas for refunds.
The future of handhelds
Even with such glitches, analysts project that some 61.5 million consumers will want access to wireless-information services in 2001, up from 7.4 million last year, according to International Data Corp. But just which companies will best take advantage of that demand and what shape that demand will take remain unclear, as the diverse trading picture of Palm and Handspring shows.
Palm is way below its IPO highs of around $165; it closed Wednesday at $51.69. Handspring is below recent highs of $99.50, but not too far below -- it closed Wednesday at $75.00. Handspring had a 36 percent jump in sales in the latest quarter; it hit $70.5 million in sales on net income of $16.4 million.
Consumers remain "confused" about handhelds, analysts say. On the one hand, consumers want their handheld computers to work like PCs when it comes to Internet content and viewing quality. On the other, they want as much information as possible on their cell phones, which all will be WAP-compatible by the middle of next year. But do they want to lug around both devices in addition to their laptops?
Further confounding matters is the fact that the U.S. is plagued by a variety of technical standards in the wireless field, and service is spotty. Plus, American consumers don't seem as eager to work with information on small screens as their Japanese and European counterparts. No vote count, IPO or Comdex event should settle this score in the near future.
Janet Purdy Levaux is a freelance writer (and mother of two) based in Oakland, Calif. She covers electronics, semiconductors, telecommunications, health care and related industries as well as global trade. If you would like to submit a letter to the editor regarding this story, email online@upside.com.
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