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Technology Stocks : WAVX Anyone? -- Ignore unavailable to you. Want to Upgrade?

To: Peter Caradonna who wrote (4412)	10/28/1998 2:06:00 PM
From: Mike M	Read Replies (1) \| Respond to of 11417

For those of you who aren't registered at Businessweek... And don't want to slog thru the drivel at RB... WAVE SYSTEMS' BIG NEWS BARELY MAKES A SPLASH Remember when you were a kid and you couldn't wait for Christmas -- but when it actually arrived, you didn't get any of the presents you wanted? That's probably how shareholders in Wave Systems (WAVX) feel right now. For months, rumors about huge alliances with computer manufacturers have been flitting about message boards and investor meetings, promising salvation to a company that has so little working capital that it was delisted from Nasdaq a year ago. Today, a blockbuster deal with Hewlett-Packard (HWP) was announced by CEO Steven Sprague -- and the stock ended the day practically unchanged. Not exactly what investors were hoping for. Wave Systems makes a small chip called the Wave Meter that's designed to be built into computers and essentially acts as a tiny firewall on each PC. The San Jose (Calif.) company's Wave Meter not only allows others to identify you accurately, and thus give you access to encrypted information, but it also will allow you to download software and then pay for it on a per-use basis, with the Wave Meter measuring how long you use it (see BW Online 6/18/98 "Time to Catch Wave Systems' E-Commerce Chip?" ). Of course, nobody can use the Wave Meter if no PC manufacturers are putting it into their computers. IBM had signed a revenue-sharing agreement with Wave Systems in case it started installing the Wave chip, but Big Blue has yet to commit to it. That's why today's announcement was so important to the tiny company. HP agreed to specifications for a complete end-user security system based on the Wave Meter. While HP didn't commit to putting the system into its computers, it's considered a good bet to do so sometime in 1999. Japanese computer maker NEC also agreed on Oct. 27 to install Wave Meters on some corporate computers next year. Now that Wave Systems has some good news to report, why isn't the stock responding? Actually, it did jump by 20% in the morning of Oct. 27, to $5 and change. But by the close of trading, it was back to $4.34, only 5% above its opening price. The answer doesn't lie in the nature of the news, but in the expectation of it. The market seems to be following the old saw, "buy on the rumor, sell on the news." According to the Wave Systems' investor message board on RagingBull.com, a fierce battle between the shorts and longs on the stock has been going on for the last few weeks. And where there are shorts (investors who borrow the stock and sell it, expecting to make a profit when the stock goes down), there are often opportunistic longs (those who buy the stock expecting to squeeze out the shorts, causing the stock to rise, and then quickly selling -- as opposed to long-term investors). As soon as the stock went up considerably on Oct. 27, the opportunistic longs started selling shares to take profits. Apparently, there were lots of opportunistic longs, as the stock's trading volume, normally a few thousand a day, reached 1.7 million shares. So what's the future for this stock? Pretty bright, especially since its price hasn't ramped as a result of the good news. "This announcement is big," says James Melcher, president of Balestra Capital, which has a large holding in Wave Systems. "They are off to the races. This is not going to remain a small company for long." If other PC manufacturers start riding this Wave, the shorts will have to look for someplace else to play. Sam Jaffe writes about the markets for Business Week Online