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Technology Stocks : Aware, Inc. - Hot or cold IPO? -- Ignore unavailable to you. Want to Upgrade?

To: Norman Klein who wrote (4050)	8/13/1998 6:50:00 PM
From: Bill	Read Replies (4) \| Respond to of 9236

The company's shift to a licensing/royalty model will not generate enough revenue to support anything near their current market cap in the next three years, in my opinion. Start with a US market of 100 million households. Assume 40% PC penetration and 60% internet penetration on the PCs. Of these 24 million, assume the best case scenario for AWRE, that 40+% become ADSL connected in the next 3 years. Of the 10 million, assume AWRE technology captures 50% market share, or 5 million households. Systems companies, which make the DSLAMs and modems, are currently implementing DSL for $600 per line. Sourced technology components make up about 25% of this cost or $150. AWRE's revenue is a portion of each $150 component. For the sake of argument, let's assume it will average 20% or $30 over the next 3 years. $30 x 5 million connections = $150 million. Assume international ADSL penetration lags North American market by two years. By these calculations (and I admit to a vast set of unsubstantiated assumptions) the most AWRE would capture would be $150 m over 3 years. Now look at the reality. Cable modems are eating ADSL's lunch. There will not be 10 million ADSL households in 3 years, and at this juncture probably not even 3 million. There will not be business users, unless its soho, and even those will be better targets for 2B1Q line coding. And what are the chances AWRE gets 50% of this business when every one of the component companies is actively developing alternative technology in-house? So the $150 m over 3 years suddenly looks like $35 m over 3 years to me. Without the product revenue, they'll do $1-2 million/qtr licensing/royalty ramping to $5-6 million/qtr by 2000. That's if everything goes according to plan. But hey, what do I know? I'm just a janitor.