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Technology Stocks : LAST MILE TECHNOLOGIES - Let's Discuss Them Here -- Ignore unavailable to you. Want to Upgrade?

To: Kenneth E. Phillipps who wrote (9892)	12/22/2000 8:46:51 AM
From: Kenneth E. Phillipps	Respond to of 12823

TELECOMMUNICATIONS How much for 3G? Mon, Dec. 18, 2000 17:33 By Maria Babbage, Canada-iNvest.com In every battle, it's important to choose allies carefully. Now that Nortel Networks (NT) plans to take on wireless giant Ericsson (ERICY) as the top supplier of equipment for the next generation of wireless networks, the telecom giant is wasting no time trying to get an edge on the competition. Nortel announced today it would provide "marketing and financial support" to British Columbia-based Sierra Wireless (SW) and California firm Xircom (XIRC) to develop the industry's first third-generation (3G) wireless modems that will enable high-speed Internet access on the new generation of mobile networks being built in Europe. The modems, to be used on the Universal Mobile Telecommunications System (UMTS) networks and based on UMTS and General Packet Radio Service (GPRS) standards, are expected to hit the market in early 2002. None of the companies have revealed how much money Nortel is expected to shell out. Sierra and Xircom, both wireless data communications hardware providers, plan to develop their own multi-mode wireless modems in a variety of physical dimensions, including PC cards, Compact Flash cards and embedded modules. Third-generation networks promise consumers high-speed Internet access through handheld devices like cell phones, Palm Pilots and laptops, increasing the current speed to about 200 times its present rate. UTMS is a 3G broadband transmission of both data and multimedia at high data rates to wireless devices. Once the system is up, mobile users can be constantly attached to the Internet at high speed as they travel. But the financial impact of the deal won't be felt for some time, say analysts. Although having 3G products ready-made for Nortel equipment will give Nortel an edge in attracting big contracts to build high-speed wireless networks, Sierra executives have already said their revenues won't be affected until the second quarter of fiscal 2002. "From a short-term perspective, it doesn't change our revenue or earnings estimates for fourth quarter of this year, it doesn't change anything for next year. The device won't be ready until probably Q2 of 2002," says Barry Richards, a wireless analyst for CIBC World Markets. "The deal doesn't have any specific revenue elements to it. It won't be Nortel buying product directly from Sierra, it'll be Nortel putting up some money to help development and to put up some resources to help market these products once they're developed. But really, it's about Nortel." The Canadian giant seems poised to fire the first shot in the war to win the 3G market. While Ericsson is the undisputed leader in wireless equipment, it's clear Nortel wants to edge its way up, beating out competitors like Lucent (LU), Alcatel (AT) and Cisco Systems (CSCO). "Nortel has not really been in the business of providing these consumer-style electronics that would be sold either through a retail channel, whereas Sierra and Xircom have been providing both branded and third-party product into the consumer electronic market," says Terry O'Brien, a Nortel analyst with Branch Cabell in Richmond, Virginia. "So I think this is going to give Nortel an opportunity to have the expertise of those companies combined with their expertise in the infrastructure products together to provide the total solutions or portions of a solution for the wireless infrastructure." By working closely with these two companies, he says Nortel can ensure the modems will fit hand-in-glove with its UTMS equipment. "It's really good when you have companies that are going to be working in close concert with each other, then you're certain that, even though they've follow the standard, they've got the maximum compatibility with the product. That's why it's important to have these alliances." Richards guesses Nortel could be sinking about $1-5 million into the deal. "Not too, too much, but enough to make it worthwhile." But that won't be the biggest impact of the deal for Sierra. "From a general perspective, this is just another validation of where Sierra Wireless fits in the broader scheme of things, which is a great place," he says. "Second, it proved their ability to leverage themselves, and that's most of what this deal is about. It's about Nortel putting up a little bit of money for Sierra to accelerate development of these products. Thirdly, it shows how desperate the OEMs are-the original equipment manufacturers on the infrastructure side-how desperate they are to have devices that work on these new networks, because without devices, it's hard to convince the carriers spend billions of dollars to buy new infrastructure. So, they're helping to accelerate that process to help themselves sell more infrastructure." With a strong buy recommendation and a CDN$142.50 target on Sierra stock, Richards says he expects to see some revenue results in the second or third quarter of 2001 when Sierra announce some revenue-generating contract with Asian or European carriers. "They've pretty much got it figured out now and they're hammering away at putting these products on the market," he says. "They signed up some huge partners so, it doesn't get any better in Canada in the wireless space."