Forbes feature article is on Broadband:
By Charles Dubow
Picking stocks is never easy. It becomes even more difficult when the investor expects dramatic returns. While everyone dreams of getting in on the ground floor of a future Microsoft (nasdaq: MSFT), Amazon (nasdaq: AMZN) or Yahoo! (nasdaq: YHOO), very few people are that lucky. But what all these phenomenally successful companies have in common is that they were pioneers in a field that most investors didn't yet understand.
High-speed broadband connection is another such technology that is about to come into its own. There are a number of successful companies already in the space, including giants like Cisco Systems (nasdaq: CSCO), Sun (nasdaq: SUNW), AT&T (nyse: T), Intel (nasdaq: INTC) and others. These are household names and will continue to be important players. These companies are proven investments. Just look at Cisco, whose stocks have gone from $25.30 three years ago to $117.69 today.
But these more established names do not represent the same margin for growth or return on investment as investing in a relatively young broadband company. Therefore, here are five companies that we think could become the big players in broadband: Aware (nasdaq: AWRE), C-Cube (nasdaq: CUBE), Com21 (nasdaq: CMTO), Terayon (nasdaq: TERN) and Texas Instruments (nyse: TXN).
But first of all, what is broadband? Broadband is a faster connection to the Internet that not only makes going online as immediate as turning on a TV but also allows users to enjoy such applications as real-time videos and financial data, advanced videogames and fully interactive e-commerce transactions. As the convergence between the PC, telephone and television speeds up, broadband will enable IP (Internet Protocol) telephony, video conferencing and home networking. By 2002, more than 9 million people will have broadband access, escalating to 21.3 million homes by 2008.
There are several methods for providing broadband connection, most of which are too expensive for the average individual. The most common is a T-1 line, which allows two-way 1.5 Mbps speeds but at an average cost of $1,000 per month. What the five companies we are spotlighting in this article are aiming to do is to deliver affordable broadband technology that is significantly faster than a T-1 line.
There are two technologies that seem likely to become the most popular broadband entries to the Internet. The first is via the hybrid-fiber coaxial (HFC) cable, which is being deployed by the cable TV companies. The second is the digital subscriber line (DSL), which is used by the telephone companies and effectively upgrades the thousands of miles of existing copper telephone lines into a modern network capable of delivering broadband speed.
While more than 95% of the U.S. population has a telephone, the telecommunications companies have been slow to deploy DSL technology. At the same time, though, the cable companies have been reluctant to spend the billions necessary to upgrade their aging cable plants. The concern, on behalf of both the cable and the telecommunications companies, is that the up-front investment necessary to build out or upgrade their networks won't be justified because of an initial lack of demand.
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By 2002, more than 9 million people will have broadband access, escalating to 21.3 million homes by 2008.
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But, particularly in the aftermath of AT&T's proposed acquisition of MediaOne (nyse: UMG), broadband appears ready to shift into high gear. As the consolidation of the cable business increases, companies like AT&T will be able to bundle their services together, combining long distance, local calling, wireless, broadband and cable television on one consolidated bill for less than if each service were ordered separately.
There are a number of established companies developing and marketing broadband technology--such as Cisco Systems, Sun Microsystems, International Business Machines (nyse: IBM), even AT&T--but these companies do not represent the same margin for growth or return on investment.
The five companies selected each provide necessary solutions for either cable or DSL broadband connection, and with the exception of Texas Instruments (TI), none of these companies is well known to the general investing public. For that matter, again except for TI, all are young companies and may be found only in the business-to-business market.
Despite these companies' lack of name recognition and the limited deployment of high-speed technology across the country today, broadband access is gaining in momentum. Recent news of companies like America Online (nyse: AOL), Microsoft and AT&T investing billions to gain cable and DSL access serves to underscore this growing trend.
As competition between the cable and the telephone companies becomes more fierce the sure winners will be the consumers, who will see their monthly bills shrink, and those companies that are able to bring broadband technology to market fastest.
Because the cable and the telephone companies will be heavily increasing their spending to upgrade their networks to deliver high-speed broadband connections, these five companies are expected to see a corresponding rise in value.
Aware, Inc.
C-Cube Microsystems Inc.
Com21, Inc.
Terayon Communications Systems
Texas Instruments Inc.
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