**** Hambrecht & Quist **** Hambrecht & Quist **** Hambrecht & Quist ****
Company: Westell Technologies
Price: 6.21
Recommendation: Buy
Notes: a,b,f
Date: 5/24/99
Since 1988, Westell has also provided conferencing services through its
Conference Plus, Inc. (CPI) business unit. Today, CPI is one of the leading
providers of fully managed, multi-point teleconferencing services. With
today's more global and mobile corporate structures, CPI allows its customers
the ability to rapidly hold fully functional meetings at lower cost. However,
it helps customers simultaneously increase the productivity of its workforce.
Further, CPI allows users to share information via audio, video and data
conferencing in a manner totally agnostic to method of transport.
Need for Speed
We believe that Westell is one of the few companies in the telecommunications
equipment and services market that delivers multiple solutions to capitalize
on a predominant trend that we see in businesses today. We believe that this
trend is that as businesses were reengineered and right-sized during the 90's
they shifted their attention from internally driven process-centric
organizations to becoming more externally focused customer-centric
organizations. We feel that this has, in turn, resulted in these companies
seeking three seemingly contrary results: (1) increased employee productivity,
(2) improved customer service and (3) increased operating efficiency.
Moreover, organizations are attempting to accomplish these goals in an
increasingly challenging environment. Their employees have become more mobile
and geographically dispersed, their suppliers and strategic partners have
become more dispersed, and their customers are demanding more micromarketed
products and services.
Throughout the 1990's, the telco service providers have experienced an
increasing demand for advanced voice and data services to meet the increased
needs of these reengineered organizations. In addition to the obvious increase
in voice traffic customers are now seeking advanced, high-speed data services.
With Internet traffic now doubling every about every 100 days, providers have
increased the capacity in the backbone of their networks through both new
plant (fiber) and new technologies. However, it appears that it continues to
be cost prohibitive and labor intensive for most telcos to replace the
installed base of copper in the local loop to keep up with this increased
demand for bandwidth from data traffic.
We believe that it is quite evident that the increase of e-mail, fax,
transaction processing, video on demand and web access will see accelerating
growth over the next several years as e-commerce continues to develop.
Further, consumers of telco services are demanding that they are allowed to
send more feature rich content via the Web. This increasing demand for both
higher quantity and quality of data traffic to be sent ever faster has further
exacerbated the "bandwidth bottleneck" in the local loop.
Finally, deregulation has opened a window of opportunity for new entrants to
enter the local telecommunications services market. Alternative carriers such
as Cable providers and CLECs are provisioning new products and services at
competitive prices. We feel that this more competitive environment may give
incumbent telcos an incentive to upgrade their networks and increase their
telecommunications service offerings.
In light of the telcos' customers having moved to the new customer-centric
business environment, we feel that these customers insatiable quest for
bandwidth will continued unabated well into the new millennium. Given the
difficulty in replacing copper wire in the local access network, telcos have
turned to equipment and systems manufacturers for cost-effective solutions.
Westell along with other manufacturers have developed a variety of
technologies that can expand the ability of the existing copper wire
infrastructure to accommodate high speed digital transmission. Further many of
these new technologies can better exist in the new packet switched world of
data communications.
Westell's Strategy:
We believe that Westell's overall Corporate objective is to be a leading
provider of solutions that enhance the carriers' ability to operate and
maintain communications networks. We further believe that, over the past
several years, WSTL has built several key competitive capabilities and that
management will now seek to fully realize the organization's full potential.
We feel that these capabilities include:
*Leadership in Audio, Video, Multimedia, and IP Data conferencing services;
*Proven leadership in xDSL systems include ATM DSL Access Multiplexers,
Digital Loop Carrier Implementation of xDSL and xDSL Value Added CPE including
PPP Routers and Integrated Access Devices;
*High quality Manufacturing, Sales and Service;
*Established Channel with ILEC's, CLEC's and PTT's;
*Strong Technology and Marketing Partnerships.
We believe that over the next several quarters we may expect that Westell may
use these capabilities to exploit opportunities to grow its businesses
synergistically. In general, we believe that investors will view Westell as a
"solid Company with a good xDSL business" rather than as an "xDSL Company."
The following components of Westell's strategy elucidate why we believe that
WSTL will be well positioned to exploit the opportunities presented by the
aforementioned industry trends:
Continue to build Conference Plus, Inc. (CPI). Management intends to
continue to grow this jewel of a business in excess of 40% per year through
both its retail and private label service offerings. The Company expects to
continue offering audio and video conferencing, but has recently introduced IP
interactive web casting as a data conferencing offering. We expect that WSTL
will supplement CPI's organic growth with accretive acquisitions, additional
IP services and horizontal service expansion.
Continue to grow Telco Access Products (TAP). We expect that Westell
will continue to invest in its strong TAP business. We expect that TAP will
continue to grow via the organic growth of its existing product lines and the
addition of new products over the coming quarters. We believe that TAP will
continue to show consistent double-digit growth throughout FY00 and into FY01.
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