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Technology Stocks : General Magic -- Ignore unavailable to you. Want to Upgrade?

To: Gerald Schickling who wrote (2520)	6/28/1998 6:45:00 PM
From: Alec Epting	Read Replies (1) \| Respond to of 10081

I talked a friend into investing into GMGC. Recently, he wrote me expressing concern about share dilution. Here's what I had to say. Any comments? "The reason they are doing this is they expect demand to be much greater than originally envisioned. They were planning on serving 1 million subscribers. They will use the money to upgrade capacity to support 5 million subscribers. They are afraid they will be ridiculed in the press like AOL was if they are not prepared for the initial surge in demand. I would not be so concerned about P/E or earnings at this juncture. I have come to the conclusion that Wall Street uses different valuation models depending on the industry sector. In my opinion, GMGC falls in the same category as AOL and cable networks. AOL barely ekes out a profit, and that after using a great deal of legerdemain I might add, yet the stock sports a P/E of over 300 without a single objection by the analysts. In fact, AOL just recently filed for a $1 billion shelf registration. What do the analysts do? They upgrade the stock. GMGC will be rated on subscriber growth for the next few years, not earnings. This is what you should look for. Right now, the street is waiting with baited breath for a major carrier to sign on. The reason the stock fell from 15 to 12 1/2 is everyone was expecting a carrier announcement at the annual meeting which didn't materialize. But a number of resellers are already offering the service. I don't think it will be too long before major carriers sign on due to competitive pressures. Phone companies tend to be conservative unless pressured by competition, so it doesn't surprise me that they haven't signed on after only a month or two of testing. Currently, Bell Atlantic Mobile, BellSouth Cellular Corp., Cellular One (San Francisco Bay Area) and Triton Communications (a member of the AT&T Wireless Services Network) are evaluating the Portico service. If you want to try an interactive demo to get a feel for what this technology can do, call 1-888-SAY-DEMO. While this is not a Portico demo, it uses very similar technology. To see what kind of backing GMGC will have, just look at the makeup of the board: CEO of Bell Atlantic Mobile, CEO of Cellular One, CEO of Triton Communications, CEO of Tandem, CEO of Visa USA. Do you think GMGC will have trouble signing up major carriers? If GMGC signs up 5 million of the 65 million cellular subscribers and 100 million US telephone users at an average of $30 a month, that's $1.8 billion a year in revenues or $66 per share. At a conservative 2x revenue, that's $132 per share. GMGC has a $147 million or $5.46 tax credit already, so you can imagine what earnings are going to look like. Some of the institutional investors in GMGC include: Microsoft, Apple Computer, AT&T, Barclays Global US, Bear Stearns, JP Morgan, Lloyds Bank Suisse, Prudential Mutual Fund, Ryback Mgmt Corp., SONY, TriMark . These are some real heavyweights who must have seen something in the company. Microsoft's chief technologist says GMGC's "original plans were way ahead of its time". In fact, Microsoft has licensed GMGC's smart agent technology, which is a key component of Portico, for their future OS. Running in the background, smart agents scour the web looking for information a user might be interested in. GMGC holds a patent on this technology. Just this past week, GMGC demonstrated a telephone which incorporates MagicTalk(tm), the voice recognition feature of Portico. Besides enabling a user to make calls without dialing simply by speaking the party's name into the handset, the phone will allow two users who have the phone to make long distance calls over the Internet for free. You see, GMGC is planning to take this technology beyond Portico into every consumer device imaginable by licensing the technology, Much as Dolby became a household name known for noise reduction in tape decks. MagicTalk(tm) will be the voice recognition interface of choice. Don't underestimate the importance of branding. Coca Cola, America Online, and Yahoo are all brand names that the market values highly, much more than the companies are worth in terms of their balance sheets. In another two months, the stock should be trading at $20. I expect $30 by year end and $50 sometime next year if all goes according to plan. With the lack technology drivers in the marketplace right now, I think you will find money gravitating toward glitzy technology. GMGC has just that, and you'll see alot of free publicity starting in August. Remember the early adopters will be businessmen, and they have money to invest. What do you think they will invest in? I'd hang on to this stock if I were you. They don't come along very often."