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Technology Stocks : PairGain Technologies -- Ignore unavailable to you. Want to Upgrade?

To: Kevin Kessel who wrote (25883)	9/3/1998 11:11:00 AM
From: Tim McCormick	Read Replies (2) \| Respond to of 36349

KK, it has become apparent to me that ADSL's binder group problem is a huge advantage to HDSL/SDSL. The telcos are waking up to the fact that SDSL loop qualification rates are substantially better than ADSL. Pair is being given away at 2X cash. I buy now. Later, Tim

To: Kevin Kessel who wrote (25883)	9/3/1998 11:35:00 PM
From: Rainmaker	Read Replies (5) \| Respond to of 36349

KK Here are my opinions/responses to your questions. This is based on information provided on this board, research, and my knowledge of this company. 1) What is going to happen w/ the Bell Atl. Contract? PAIR has enjoyed a strong relationship with BA over the years. This will continue. Currently, they own 50% of the HDSL market with this teleco (Soundview Analyst report). IMO, they will likely be a winner among a group (including The Competition) who provides this commodity product to the teleco. Their win portion will be based primarily on pricing. Secondary factors include compatability with existing equipment, support, and demonstrated product reliability and performance. There are concerns their marketshare with erode, but most analysts believe they will maintain their market position with BA (50%). PAIR is the primarily vendor to SBC/Ameritech. They will likely maintain this status when the SBC RFQ award is announced. BTW, my college buddy (a former Pac Bell manager of 8 years) confirmed Pac Bell (now SBC) used PAIR equipment. 2) When Lucent is freed up to buy companies w/stock at the end of this month - will PAIR be on the shopping list? There is widespread speculation that Lucent will make a play for PAIR and several other small telecom equipment makers (see August 98 SMART MONEY article). The fit makes strategic sense for Lucent who will utilize what PAIR has to offer to gain market share; pull away from NT, CSCO, et. al.; and become a dominant data company. The $250+M is mighty enticing to a suitor's bottom line. A profitable PAIR Q after Q, even with up to 50% pricing reductions, will minimize any earnings dilution (may even be accretive). A Falcon chip-based modem can bring Lucent to a huge consumer base and give Lucent a product that parallel their AT&T phone days (remember the 70s when we all owned an AT&T phone?). PAIR's growing international reach can help Lucent expand abroad. The RBOC relationships can strengthen as both have strong ties. Etc. IMO, LU will not make a move for The Competition because they have a more limited product line, NO ADSL products (on the horizon? - no mention in 2Q earnings report), and NO international base, unlike PAIR, who is currently selling in Brazil and China, the two largest growth markets for HDSL products. 3) What will this quarter bring in terms of earnings? Analysts are expecting $0.17 per share which translates to around $13M in earnings on revenues of around $80M. This equates to a 16% net profit on margins of approximately 50% (even with the pricing war!). Personally, I expect PAIR to beat the street estimate by a penny. 4) What are their prospects for the ADSL market? And what is the future of xDSL in general? Their Falcon chip-based modem will serve both industry and the consumer. This will bring PAIR to the mainstream (via Rockwell) and offer significant company branding. Beta units are in-place. Expect the final product by year end (after ADSL standards are set in October so final configurations can be made - simple task). There are rumors that PAIR will link up with an ISP such as Earthlink and/or AOL to compete against cable modems in the consumer market. The HDSL market is expected to continue growth at around 40% per year through 2001 (this is an impressive number for those stating this is a DEAD market). The ADSL future is dependent upon final standards to be set (October). Growth projections will likely mirror or exceed the HDSL market. xDSL technology focuses on data delivery. According to Fortune, the current $10B market will explode to $100B by 2001. For ADSL, there will be two version, G.Lite (for consumers - expecting 5 to 10% of the market) and full-scale ADSL (for businesses - expecting 90 to 95% of the market). The single Falcon chip can accommodate both (from an engineering perspective, this is HIGHLY flexible). Any company's success with this technology will be speed to market. The fact that PAIR has products ready for deployment (which have been thoroughly tested) and RBOC relationships puts them ahead of the game. These are my opinions.