Link up with SpectraLink

03/24/2006 12:00 am EST


"As more companies turn to voice-over-IP wireless networks to allow their employees to better communicate, SpectraLink should be a big beneficiary," notes Nikhil Hutheesing, the industry-leading advisor in wireless . Here’s his latest.

"SpectraLink (SLNK NASDAQ), which manufactures phones that can integrate with both wired and wireless networks, is gaining traction among big companies where employees must be easily reachable, as well as with big original equipment manufacturers such as Avaya and Alcatel, which are looking for ways to expand their businesses. Next time you walk into a Home Depot or a Lowes store, look at the phones that are carried by the salespeople and floor managers. Make no mistake: these are not cordless telephones such as the one you might have in your home.

"SpectraLink's phones work off a system known as a wireless local area network. But what really separates its products from others is that they also integrate into a traditional wired phone network. So if a caller dials the Home Depot to find out if a particular cut of lumber is in stock, for example, the receptionist can forward the call to a sales person. For store patrons it can mean not having to wait on hold while the receptionist pages a department specialist over the PA system.

"It's exactly this kind of communication system that has led so many companies to turn to SpectraLink. In 2000, SpectraLink only had 50,000 phones in use. Today, it has over 130,000 phones in use. Besides Home Depot and Lowes, the system is also used by companies such as Borders, Barnes & Noble, Macy's, Nike, Toys R Us, Albertsons, and in hospitals and schools.

"Why not just use a cell phone? Well, part of the appeal of the SpectraLink system is the cost. SpectraLink's system (which requires Wi-Fi access points to be set up at the store or throughout a campus) is a one time capital purchase with the cost depending on the size of the company. The real cost benefit, though, is that once the system is installed, there are no airtime minutes to worry about when calls are being made. The result: SpectraLink's system has become a very competitive alternative to using cellular phones in the workplace.

"The stock has been under pressure partly because the adoption of wireless networks and voice-over-IP networks by companies was slower than expected in 2005. Expect SLNK to have a good first quarter of 2006. I expect to see revenue in the first quarter of $35.1 million, or a 71% increase versus the fourth quarter of 2005. I think SLNK could generate earnings per share in 2006 of 76 cents per share. During the past five years, the average p/e for the stock has been 28 times. If you value SLNK at this multiple, you get a price target of $21—an increase of 70%. As a result, I believe that shares of SLNK, make for an attractive investment at current levels."

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