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Strategies & Market Trends : The Thread Formerly Known as No Rest For The Wicked -- Ignore unavailable to you. Want to Upgrade?

To: William S. who wrote (12808)	2/10/1999 11:25:00 AM
From: MARK C.	Read Replies (2) \| Respond to of 90042

SI Inbox (53) \| Folders Bookmarks \| People Hot \| New Subjects Options \| Profile Port#19 - winners - [New] Talk : Communications : PairGain Technologies \| Previous \| Next \| Respond \| Earnings \| To: +Eric Terry (28559 ) From: +Greg h2o Wednesday, Feb 10 1999 11:06AM ET Reply # of 28562 Here's the report...sorry i didn't have time to clean it up: 9/10/99 PAIR IS AN UNDERVALUED ADSL PLAY SUMMARY & INVESTMENT OPINION We are recommending PAIR for a 3-6 month trade with a 50% or better upside potential of $15 (in a range of $14 –18). We view PAIR as a significant, if not major, player in the ADSL market and believe that it will soon, possibly within a few weeks, begin a barrage of press releases on ADSL products and design wins that will draw attention to PAIR's ADSL strengths and raise the stock's valuation. The current valuation ignores ADSL and if PAIR is valued the same as other ADSL players such as AWRE or WSTL, traders will be well rewarded. We are maintaining our earnings forecasts of $0.43 this year and $0.66 next which includes ADSL revenue and are maintaining our rating of HOLD as the stock, in our view, is nearly fully valued on a fundamental basis at almost 20x next year's earnings. KEY POINTS PAIR is the leader and arguably the most knowledgeable player in the digital access market with its HDSL product line. It bought Avidia a year ago to add ATM knowledge and recently brought on board a new CEO from Newbridge, in part, because of his systems expertise. We believe the knowledge base and telco relationships will lead to a product family that will garner a significant market share. The company has not formally announced its ADSL activities and wins but is expected to begin announcing soon. PAIR's Avidia DSLAM recently won a contract in a shoot out against six competitors proving its competitive value. Now Avidia is in six trials, with more coming. Telcos would not spend PAIRGAIN TECHNOLOGIES, INC. (PAIR: $9 3/4) RATING: HOLD FEBRUARY 10, 1999 JAMES STONE (415) 733-3042 jstone@preftech.com 52-Week Range: $24 3/8 - $6 Market Cap. (MM) $729 Shares Outstanding (MM) 74.8 Avg Daily Trading Vol (000) 3,079 Management Owns 20.0% Tot Debt/Tot Cap (12/98) 0.0% —————— EPS —————— FY Mar. Jun. Sept. Dec. YR P/E Rev 1997A $0.15 $0.16 $0.19 $0.17 $0.66 14.7x $295 Current 1998E $0.16A $0.16A $0.16A $0.05 $0.53 18.5x $285 Previous 1998E $0.16A $0.16A $0.16A $0.16 $0.64 15.2x $299 Current 1999E $0.05 $0.09 $0.12 $0.16 $0.43 22.9x $293 Previous 1999E $0.15 $0.16 $0.17 $0.19 $0.68 14.3x $358 Current 2000E $0.16 $0.16 $0.16 $0.17 $0.66 14.9x $370 PREFERRED CAPITAL MARKETS, INC. 2 time evaluating PAIR equipment unless they are serious because of the cost, time and effort that it takes. Some of the wins are from widely known household names. Because of PAIR's knowledge of the market and its requirements, the Avidia has significant advantages over most of its competitors. The value of these functions is demonstrated by the fact that PAIR is winning contracts even though its product is not the lowest price and is often priced considerably higher than competitors. 1. It is a switch, not a multiplexer. This provides significant cost advantages, especially for CLECs and ISPs because it cuts down the amount of traffic that has to be backhauled over expensive leased facilities. 2. It is denser and supports twice as many ports per shelf as most competitors. A double density version will be released late this year. The density saves expensive, especially when collocated, space and power. 3. It has a 26,000-foot reach (the distance from the central office to the customer), 20% -50% further than competitors. 4. It is multimedia and supports ADSL, HDSL-2, Frame and ATM. 5. Its management support is much more than others. It supports circuit and network management functions. PAIR is initially targeting CLECs and ISPs where the switch function has a major payback. RBOCS will be later. Revenue is expected to rise rapidly in the second half and total $20 M this year, 5-7% of PAIR's total and substantially higher next. Our forecast uses $15-17 M. This is significantly more revenue than many competitors. Market. A recent forecast by an independent house put the total ADSL equipment market at $250 million this year and growing to $450 M over the next few years and then slowing or flattening because of declining prices. We believe it is slightly larger and will continue to grow for the foreseeable future, but at a relatively slow rate as prices decline. PAIR will participate in both the modem (CPE) and central office (CO) equipment markets. Its megabit modem is already a leader in the HDSL market. The central office (service provider) equipment market will be considerably larger than the modem (CPE – customer premises equipment) part of the market. Modem prices should decline rapidly to a hundred dollars or less following the standard modem pricing curves. A significant part of the service offering is the “always on” feature -- the user is always connected to the Internet. This requires one line of access equipment at the central office for every modem. The total central office equipment per line (DSLAM, interface cards, switches and other) is in excess of $1,000 per line but should quickly drop to $400 –500. CO equipment will always carry a significant premium to a modem because more equipment is required and it must be higher in quality reliability. PREFERRED CAPITAL MARKETS, INC. The following table summarizes PAIR's valuation of $15, including nearly $3.50 per share in cash. Sector 1999 Revenue Estimates Min Value Max Value HDSL Unit growth is 30% or better. The price declines should slow later this year and with HDSL-2, the longer-term revenue growth should be 15-20% The valuation criteria is 1.5-2x 1999 revenue. 132 $200 $250 PG Flex family growing at 50-100%. This fast growing sector deserves a 3-4x 1999 value. 83 250 320 Royalties are pure profit and could carry a 10x value. 11 100 100 Cash on hand. The compan y has no debt 233 233 Miscellaneous Products , valued at 1 - 1.5x 40 40 60 ADSL products. Aware carries a $770 M valuation and Westell is valued at $200 M. Pair, who's revenue could be considerably larger than either should carry a value between them 15-17 200 400 Total 1,023 1,363 Per Share (75 M outstanding) 14 18 Next Previous \| Previous \| Next \| Respond \| View reply to this message Quotes - 100-Day Chart - News - Profile - Earnings - Discussion - Communications View SubjectMarks Bookmark this Subject PairGain (NASDAQ: PAIR) Time: 11:02AM Last Trade 9 13/16 Change + 1/16 (+0.64%) Bid 9 3/4 Ask 9 13/16 Volume 0408,7000 Prev.Close 9 3/4 Open 9 3/4 Day Range 9 5/8 - 9 15/16 Last Tick 0Down0 Avg.Volume 03,386,3000 52-week range: 6 00 - 24 3/8 Discussion \| People \| MetaCrawler Subject Titles Only Full-Text This Subject Only Send questions and feedback to webmistress@techstocks.com Terms of Use