Here is an edited for brevity statement made by the CEO of Spectrum in 2001. I've been holding onto this for a long time, its an important on the record discussion of the companies future value. As a Small cap specialist, I learned a long time ago not to trust quarterly data, too often events associated with the short term are machinations designed to churn investors. Same is true here and now. without further adieu PS on the record;
Spectrum be a $150 million company in 2004.
When asked if the 2004 target is realistic, Spothelfer noted that the
company
is pursuing markets which are not only very large, but new to Spectrum.
The company estimates the commercial wireless signal-processing market
will
reach $3.3 billion in 2004. Meanwhile, Spectrum Signal also pursues fixed
and
government wireless markets. "National security agencies use signal
processing
to be able to capture, analyze, filter and record wireless communications,"
he
said. "And always will."
As a result, a larger portion of this market will be available to Spectrum
Signal because of its move to provide customers "application-specific"
products
instead of a general purpose board.
The network business, which has no revenues now, should surpass the
wireless
business in revenue by 2004. Voice-over-Packet (VoP) processing is a
convergence between the public switched telephone network (PSTN) and less
expensive packet-based networks like the Internet, Spothelfer explained.
Signal Processing Bridges Networks
Today, there are many types of communication devices which use a variety
of
networks. "Ultimately, all these networks have to communicate with one
another,
and every time you go from one network to the other, or from one standard
within one network to another standard within this network, you need signal
processing," he said.
The old and new networks are bridged using gateways. "Within these
gateways,
we provide the voice-processing power...so it takes voice, converts it and
goes
on the other network. That's what our engine does," Spothelfer said.
The company estimates the market size for such gateways will jump to $1.4
billion in 2004 from $59 million in 1999, and the company will launch its
first
products for this space in the coming quarters.
In addition, because these products require a "specialized skill set,"
there
are relatively few competitors to challenge Spectrum Signal's quest for
market
share. With the exception of such names as AudioCodes Ltd. (AUDC), Natural
Microsystems Corp. (NMSS), and Mercury Computer Systems (MRCY), "you don't
see
a large group of independent suppliers out there."
The demand for bandwidth drives sales of Spectrum Signal's product, and
Spothelfer doesn't see a slowdown there. At this point, the question is
whether
that demand can be funded.
While the financial markets have overprovided capital over the last 18
months,
and carriers overspent and overbuilt, the "underlying" demand is intact, he
said. "That's good for us."
Spectrum completed its own $5 million financing last year, and is still
hoping
to complete another in 2001, but in these volatile markets, "things can
change"
rapidly, he said.
Market size isn't an issue; it's a matter of capturing a share for itself,
Spothelfer said. Enter Spectrum Signal's alliances with such industry
heavyweights as Agilent Technologies Inc. (A), Hughes Network Systems, and
most
recently Broadcom Corp. (BRCM), which will allow the company to leverage its
technology "on their backs," he said.
But this strategy requires "significant" spending on research and
development.
Spectrum Signal expects R&D spending to hit 33-35% of revenues in 2001, but
that should come down to 15-18% by 2004. Spothelfer justifies the spending
as
"an investment," which should help propel the company to EBITDA-positive
status
in 2002, and profitability in "early 2003" at the latest.
"I think we have the energy and motivation of a start-up, but at the same
time
we have an ongoing operating cash flow which funds a large portion of this
transition, so it's a very interesting mixture." Spothelfer concluded: "We
understand ourselves as a growth business, not a legacy business. That's
behind
us."
Company Web Site: spectrumsignal.com
-Andy Georgiades, Dow Jones Newswires; 416-306-2031
(END) DOW JONES NEWS 03-07-01
09:37 AM- - 09 37 AM EST 03-07-01 |
