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Eleven Picks for Wi-Fi Greatness
By Jon D. Markman
Managing Editor, MSN MoneyCentral
01/10/2003 08:02 AM EST
Click here for more stories by Jon D. Markman
As financial journalists have grown distrustful of fundamental analysis in recent months, they've turned to technical or price-driven views of the market.
Epic stories about companies and their supposedly heroic managers that dominated business news outlets in the 1990s have gone out the court house window. Instead, tortured statistical theories, ranging from January barometers to presidential election cycles, have come in through a crack in the cellblock door.
How dull. These approaches say more about reporters' emotional response to being duped by corporate leaders and brokerage analysts than about real needs of investors.
So, in the spirit of innovation and rejuvenation, I'd like to turn my back briefly on the numerical view of the markets that SuperModels has trademarked, and instead work together with readers to focus on the people and businesses that have survived the worst bear market in two generations.
Working together, surely we can come up with some major economic and technological trends to ride through 2003 and beyond. Last year, the winning idea would have been gold-mining companies, regional banks and bonds -- all of which were amply proposed by readers in cheery emails not long after 2002 had gotten under way.
Readers' Wi-Fi Picks
Let's start with the wireless local-area network market that I wrote about at length a month ago. I asked readers for suggestions on companies that were poised to take advantage of this technology's undeniable growth prospects. And I received more than 200 responses in return.
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Tom Zachman of Dodge City, Kan., believes that wi-fi "is the starting point from where communications becomes unplugged. But the problem is that it follows the old model of centralized communications hubs that become sluggish with abundant use." Zachman believes the next evolution will be "mesh networks," in which every user is a "repeater" that links other users.
This is a great idea, as it improves the robustness of the data flow. Zachman proposed this vivid image: "Wi-fi follows our social patterns. Imagine a party where no two people talk directly, but the host is responsible for relaying every spoken word (packet). Now look at how people interact when a rumor is thrown into the scene. Now add a drunk who constantly interrupts the host, and you will understand how Internet servers interact with centralized wireless connectivity. It's a mess."
Eleven Picks for Wi-Fi Greatness
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Zachman recommends that we take a look at Mesh Networks, a company funded in large part by ITT Industries (ITT:NYSE - news - commentary - research - analysis). It promotes peer-to-peer networking that enables every device on a network to act as both a router and repeater for all other devices in the network. The slogan, "You are the network," is a very big, cool concept. If it's properly commercialized, it could be a winner. Meanwhile, ITT is a reasonably priced defense electronics and industrial flow-control device maker with a 1% dividend yield; I'll put it on my watch list for 2003.
Reader Phil Herma recommends that we take a look at PC-Tel (PCTI:Nasdaq - news - commentary - research - analysis), as its June 2002 cyberPIXIE acquisition makes it one of the few pure software plays in the wi-fi area. PC-Tel's main set of products for wi-fi networks, branded Segue, provides assistance with roaming, one of the key barriers to wide acceptance of the technology. The concept is familiar to anyone who uses a mobile phone. If you had to use a different log-in for every cellular network you used as you traveled from city to city, you'd get frustrated pretty quickly.
The cellular carriers make use of roaming technology to hand your call off from network to network. That ease of use has to be recreated for wi-fi, only on a more localized basis, as wi-fi "hotspots" are much smaller than cellular phone networks. Without roaming capability, you might have to sign off and sign onto various wi-fi networks as you walked from block to block in town.
According to a PC-Tel spokesman, the Segue business is expected to provide a material level of revenue in the second half of 2003 as it transits from trials at the carriers into commercial usage. Even if that occurs, it will still be just a small part of PC-Tel's operation, which continues to be focused on conventional modem software. But the stock is not too expensive, selling for around three times sales and just a bit over book value.
Royce & Associates, the excellent small-cap fund manager, is the largest institutional holder of the shares, owning 11% of the company. Whitney George, portfolio manager at Royce, said his team was impressed with PC-Tel's intellectual property, strong balance sheet, double-digit revenue growth and history of profitability. "A strong balance sheet and low entry price will buy us time for industry conditions to turn around," he said. I'll put PC-Tel on my watch list, too.
Wi-Fi Watch List
Keep an eye on these in 2003
Symbol Company Jan. 6 Closing Price Market Cap Price/Sales
ISIL Intersil $15.95 $2.1 billion 3.6
BRCM Broadcom 18.71 5.1 billion 4.8
PCTI PC-Tel 7.12 141 million 3.5
MXIM Maxim Integrated Products 38.04 12 billion 11.4
RFMD RF Micro Devices 8.20 1.3 billion 3.4
INTC Intel 17.34 114 billion 4.2
HRS Harris 28.26 1.8 billion 0.99
ITT ITT Industries 60.05 5.5 billion 1.14
VZ Verizon 43.50 120 billion 1.8
DT Deutsche Telekom 14.18 59 billion 1.4
LVLT Level 3 4.98 2.1 billion 0.82
Source: MSN Money
Greg Lacefield and several others recommended a look at T-Mobile, the German cellular services giant that runs the hotspots in Starbucks nationwide. You have to give them credit for being early, and the T-Mobile operation, formerly known as VoiceStream in the U.S., does have an impressive cellular network footprint in the U.S. It's a division of the giant Deutsche Telekom (DT:NYSE ADR - news - commentary - research - analysis), so there's not much point in taking an investment there just because you like its wi-fi business.
But on the other hand, Deutsche Telekom does offer a 2.5% yield, and it's not trading for much more than book value after the bear market has done its part to shred valuations. I'll add it to my watch list because European stocks have a good shot at decent performance this year anyway.
Eleven Picks for Wi-Fi Greatness
Page 2
Zachman recommends that we take a look at Mesh Networks, a company funded in large part by ITT Industries (ITT:NYSE - news - commentary - research - analysis). It promotes peer-to-peer networking that enables every device on a network to act as both a router and repeater for all other devices in the network. The slogan, "You are the network," is a very big, cool concept. If it's properly commercialized, it could be a winner. Meanwhile, ITT is a reasonably priced defense electronics and industrial flow-control device maker with a 1% dividend yield; I'll put it on my watch list for 2003.
Reader Phil Herma recommends that we take a look at PC-Tel (PCTI:Nasdaq - news - commentary - research - analysis), as its June 2002 cyberPIXIE acquisition makes it one of the few pure software plays in the wi-fi area. PC-Tel's main set of products for wi-fi networks, branded Segue, provides assistance with roaming, one of the key barriers to wide acceptance of the technology. The concept is familiar to anyone who uses a mobile phone. If you had to use a different log-in for every cellular network you used as you traveled from city to city, you'd get frustrated pretty quickly.
The cellular carriers make use of roaming technology to hand your call off from network to network. That ease of use has to be recreated for wi-fi, only on a more localized basis, as wi-fi "hotspots" are much smaller than cellular phone networks. Without roaming capability, you might have to sign off and sign onto various wi-fi networks as you walked from block to block in town.
According to a PC-Tel spokesman, the Segue business is expected to provide a material level of revenue in the second half of 2003 as it transits from trials at the carriers into commercial usage. Even if that occurs, it will still be just a small part of PC-Tel's operation, which continues to be focused on conventional modem software. But the stock is not too expensive, selling for around three times sales and just a bit over book value.
Royce & Associates, the excellent small-cap fund manager, is the largest institutional holder of the shares, owning 11% of the company. Whitney George, portfolio manager at Royce, said his team was impressed with PC-Tel's intellectual property, strong balance sheet, double-digit revenue growth and history of profitability. "A strong balance sheet and low entry price will buy us time for industry conditions to turn around," he said. I'll put PC-Tel on my watch list, too.
Wi-Fi Watch List
Keep an eye on these in 2003
Symbol Company Jan. 6 Closing Price Market Cap Price/Sales
ISIL Intersil $15.95 $2.1 billion 3.6
BRCM Broadcom 18.71 5.1 billion 4.8
PCTI PC-Tel 7.12 141 million 3.5
MXIM Maxim Integrated Products 38.04 12 billion 11.4
RFMD RF Micro Devices 8.20 1.3 billion 3.4
INTC Intel 17.34 114 billion 4.2
HRS Harris 28.26 1.8 billion 0.99
ITT ITT Industries 60.05 5.5 billion 1.14
VZ Verizon 43.50 120 billion 1.8
DT Deutsche Telekom 14.18 59 billion 1.4
LVLT Level 3 4.98 2.1 billion 0.82
Source: MSN Money
Greg Lacefield and several others recommended a look at T-Mobile, the German cellular services giant that runs the hotspots in Starbucks nationwide. You have to give them credit for being early, and the T-Mobile operation, formerly known as VoiceStream in the U.S., does have an impressive cellular network footprint in the U.S. It's a division of the giant Deutsche Telekom (DT:NYSE ADR - news - commentary - research - analysis), so there's not much point in taking an investment there just because you like its wi-fi business.
But on the other hand, Deutsche Telekom does offer a 2.5% yield, and it's not trading for much more than book value after the bear market has done its part to shred valuations. I'll add it to my watch list because European stocks have a good shot at decent performance this year anyway. |
