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Technology Stocks : COM21 (CMTO) -- Ignore unavailable to you. Want to Upgrade?

To: Jason who wrote (477)	6/3/1999 11:31:00 PM
From: Thomas Yi	Read Replies (1) \| Respond to of 2347

From MoneyCentral at MSN. Doesn't sound too good: ================================================================== TheStreet.com Can plummeting cable modem prices be good for companies that make them? By Herb Greenberg 5/21/99 Thursday Thud Modem melee: It was only a few weeks ago that Credit Suisse First Boston analyst James Parmelee told clients he thought price declines at Com21 (CMTO), a leading maker of cable modems, were "tracking" with his expectations. Then, earlier this week, Parmelee, whose firm took Com21 public, rattled investors with a special note that said the company's management had "adopted a more aggressive near-term pricing strategy to pre-empt competitive threats." That raises the question of whether the cable modem biz is headed toward the same commodity morass that buried the noncable modem industry and has, at one time or another, trapped virtually every other fast-growing high-tech company. Only faster. At Com21, the proof is in the profit margins, which appear to have passed their peak. Gross margins increased from 33.4% in the first quarter of 1998 to 4! 4.1% in the first quarter of 1999, thanks largely to cost reductions. Now Parmelee has revised his second-quarter gross margin outlook to between 38% and 39%; his original estimate was 39%. Price declines are hardly unexpected in the cable modem market. In its most recent 10-Q, Com21 said sales prices of cable modems continued to decline "during the first quarter of 1999 due to competitive pricing pressure." The company added that it expected prices to fall at a faster rate over the next few quarters. But Parmelee's comments, which caused Com21's stock to fall by 18%, suggest they're falling even faster than the company had expected. Com21 officials couldn't be reached, but a spokesman for rival Terayon Communications (TERN) says his company has been expecting 5% price declines per quarter. "There are no surprises," he says. "It's part of building a market. There's a huge market opportuni! ty, and we're just at the beginning of it." Indeed, and it's a market that's already attracting competition from the likes of 3Com (COMS), Samsung Electronics and Toshiba. The more competition, the lower the price. Terayon CEO Zaki Rakib agrees, but adds, "The faster the price goes down the better for Terayon because the faster it will get those guys out of the market." What's more, he likens Terayon, which uses its own chipsets, to U.S. Robotics, which used its own chipsets. Everybody else, he says, buys from Broadcom (BRCM) much the way the old-line analog modem makers bought their chips from Rockwell International (ROK). The result, he insists, is that he'll have the cost advantage. He very well may be right, but skeptics worry this is too soon in a product's life cycle to worry about margins. Having a cos! t advantage in a business with razor-thin margins, if that's what this industry becomes, is nothing to brag about.