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

To: stockman_scott who wrote (5948)	4/11/1999 3:33:00 PM
From: Jason Chesshir	Read Replies (1) \| Respond to of 9236

forbes.com DSL bet pays off for N.Y. hedge fund By Om Malik NEW YORK. 12:30PM EST—The Rapid growth of the Internet has generated a huge demand for high speed Internet access--both at home and at work. While business users can pay steep tariffs for blazing fast access, consumers are largely forced to live with 56 kilobytes per second (Kbps). Several companies, such as At Home (nasdaq: ATHM), are offering a sort of Holy Grail for web surfers--Internet access through the wiring used for cable TV. Using a cable-modem, a consumer can access the Internet at more than ten times the current 56 Kbps modems. Wall Street's valuation of At Home is equally high: At a recent $150 a share, At Home trades at 350 times its fiscal 2000 earnings of 43 cents a share. Steven Schuster of $40 million N.Y.-based hedge fund Gemina Capital is betting on Digital Subscriber Line (DSL) technology, which he sees as a worthy rival to cable modems. DSL allows telephone companies to provide high speed Internet access in the range of 128 Kbps to 8 megabytes per second (Mbps) over plain old telephone lines (POTS). His favorite stock is Aware (nasdaq: AWRE), which develops DSL technology. "DSL is a misunderstood technology on Wall Street, which is pushing cable modems as the winner," Schuster says. He thinks that in order to compete with cable modem service providers, regional phone companies like Bell Atlantic (nyse: BEL) and SBC Communications (nyse: SBC) will rapidly deploy their DSL technology. "Aware is the bellwether stock for DSL," says Schuster. The company develops and licenses its "intellectual property"--read DSL technology--to companies like Lucent Technologies (nyse: LU), Analog Devices (nyse: ADI) and 3Com Corp. (nasdaq: COMS), three major players in the DSL business. Analog Devices, in turn, sells these types of chips to Cisco Systems (nasdaq: CSCO), another major player in the DSL hardware arena. Lucent and others use the technology to make the chips that are used in DSL modems and other related hardware. Aware gets a per-chip license fee. "Aware has a low risk royalty model where it piggybacks on the back of these giants and makes money," says Schuster, who has purchased more than 1% of the 20.7 million outstanding shares of Aware. He bought the stake at an average price of $20.50 a share, which works out to about $4.25 million for the investment. On April 8, at the markets' close Aware was trading at $78.50, and Schuster's stake was worth $16.25 million. Not bad for a few months of work. Aware stock has tripled since then. On April 8, Aware jumped on the news that Nortel (nyse: NT) would sell DSL equipment to Bell Atlantic (nyse: BEL) for its DSL service. As you may have guessed, Nortel uses Aware technology, leading to another run-up in the stock. Schuster has not sold out of his Aware position. With $25 million in cash and no debt, Aware is in good financial health. For the fourth quarter ended Dec. 31,1998, sales jumped to $4 million, from $1.8 million for the quarter ended Dec. 31, 1997. Net income for the quarter was $575,000, or 3 cents a share, versus a net loss of $1.8 million, or 9 cents a share. And this performance came when there were fewer than 100,000 DSL users in the country. This summer Bell Atlantic and the other regional Bell companies will roll out their DSL offerings to consumers, and that should boost the demand for DSL equipment and modems. America Online (nyse: AOL), the largest online service, is also touting DSL technology. Schuster estimates that sales in 1999 will double to $23 million from $11.8 million in 1998. He expects net income to increase to 15 cents a share in 1999 versus an 11 cents a share loss in 1998 and to increase to 40 cents and 65 cents a share in 2000 and 2001, respectively. Schuster estimates that company sales will come in at $35 million in 2000 and $50 million in 2001. In today's trading Aware stock is coming under selling pressure and is off $11.62 a share to about $67. Schuster describes today's dive as normal profit taking, and he remains very comfortable with the way the stock is behaving. He says the stock could hit $100 a share by the end of this year.