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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Uncle Frank who wrote (39035)	7/16/2001 9:59:43 AM
From: stockman_scott	Read Replies (1) \| Respond to of 65232

Briefing.com Stock Brief: Where's Wireless? 12-Jul-01 12:53 ET <<[BRIEFING.COM - Robert J. Reid] People often speak of the meltdown in technology stocks, but relatively little is said about the wireless downfall. While it's difficult to find any gems at this point in the infrastructure buildout, it's certainly a sector to watch over the next few years. Wireless applications provide what will still be a great growth opportunity. It's just a bit early to sort through the rubble. General Concerns The primary concern for investors has been the adoption rate of the next generation technologies. A year ago, 3G was being ballyhooed as the greatest advance for wireless services ever. However, a number of carriers have delayed deployment in the US and elsewhere. This spring, Merrill Lynch issued an eye-opening report arguing that the costly deployment of 3G is unnecessary as it lacks a killer application and a souped-up 2.5G system could achieve much of the benefit promised by 3G. We are still a long way from delivering rich media, audio and video to wireless devices anytime soon. Increasing competition is another major concern. In the wireless service provider space, there are six carriers with a national presence. Currently, 91% of the US has access to 3+ carriers, 75% of the US has 5 or more and almost half have all six from which to choose. While we have seen quite a bit of consolidation over the last 2 years, carriers are reporting integration difficulties, especially at VoiceStream (now part of Deutsche Telecom) which bought Omnipoint, Aerial and Powertel last year. Subscriber growth is slowing. The era of rapid growth in the mid-to-late 90's is behind us. The woes at Motorola, Ericsson and to a lesser extent Nokia, handset sales are slowing. A weak economy coupled with less interest in upgrading current phones and PDAs is weighing on the group. Who Will Make It Qualcomm (QCOM) is a survivor because it simply has the best technology. There has been much debate over Qualcomm's CDMA vs TDMA as to which standard will win out. Don't be concerned that TDMA users currently outnumber CDMA users worldwide. CDMA will win because the carriers that adopt it will ultimately (in the 3G world) gain more customers. Just as packet-switched networks will surpass circuit-switched networks in the wired world, CDMA will beat TDMA technologies because it is designed with data -- not voice -- in mind. It will allow for more bandwidth in what is a limited spectrum. It is important to remember this fundamental technology advantage when weighing the daily headlines out of China. While 3G deployment is still down the road, it will eventually be rolled out. When it does, Qualcomm will be the big winner. Service Providers The wireless service providers will do well in the long term. Despite the thrashing these stocks have taken over the past year, there are positive signs. While subscriber growth has slowed, one study estimates that there has been only a 40% penetration rate for US subscribers. Some are predicting that will hit 70% by 2005 and 80% by 2008. Also, pricing has not followed the deep discounts seen in the long distance arena. CTIA estimates that revenue per subscriber (APRU) for the second half of last year was up 2% yoy. Pricing has stayed flat in the first half of 2001. Sprint PCS (PCS) and Nextel (NXTL) look attractive here. The latter will likely be acquired within the next year. Maybe Category Companies that provide wireless software applications are a bit more tricky. Stocks like Aether Systems (AETH) and Extended Systems (XTND) have promising products, but the execution has been lacking. We are a bit more hopeful on Openwave (OPWV), but it too has issues. Demand for advanced wireless data applications globally has been delayed until early calendar 2002. Slower growth rates, the uncertain macro economic environment, and OPWV's high valuation keep us on the sidelines. The surprising implosions of wireless data application providers OmniSky (OMNY), i3 Mobile (IIIM) and GoAmerica (GOAM) make us nervous on the group. However, these companies were focusing more on the consumer market, not on enterprise customers where there has been stronger demand. Hibernation Then there are the stocks that came public at the right time and have a warchest of cash, but sales have disappeared. Essentially, they will sit on the cash and simply wait out the downturn and perhaps reinvent themselves as its original products are not panning out as expected. One example is Netro (NTRO 3.84 +0.03), a wireless equipment manufacturer. At June 30, the company has over $335 mln in cash with very little debt. With the stock under $4, it is trading at less than its $6.43 per share in cash. Go figure. Conclusion The wireless world appears to have gotten ahead of itself. Companies were creating applications before the technology was available to use them. The psychology of the wireless market is similar to the Internet in that they both had that gold rush mentality pursuing subscribers over profits. However, the demand for all of these wireless applications has not yet materialized. However, wireless still offers strong growth opportunities as we become an increasingly mobile world. Even China is aggressively rolling out the infrastructure for state-of-the-art wireless services. It's still too early to formulate who the winners will be. We'll continue to monitor the sector and write about opportunities that arise.>> _____________________________________________________ If there are any wireless stocks we should consider writing about, please send comments to rreid@briefing.com. Copyright © 2001 Briefing.com, Inc. All rights reserved. Used with permission of Briefing.com