Ring up VoIP ...
11/05/2004 12:00 am EST
"Voice-over-IP, aka VOIP, is booming," says Jim Oberweis. "This is a relatively new technology which facilitates the transmission of voice telephone signals over the internet." Here the leading small cap expert looks at the best opportunities in this emerging market.
"Because VOIP circumvents traditional wireline infrastructure, the cost of a VOIP telephone call is far lower than that of a traditional wired call. I’ve used this technology for the last several years to call Europe on the cheap. A user needs a broadband Internet connection such as cable modem or DSL line for VOIP to work well. Additionally, until recently, one needed to wear a headset plugged into a computer rather than simply pick up a traditional telephone. But times are changing. The number of households in the US with broadband connections has become very meaningful. Moreover, VOIP phones are now available which provide a similar look and feel to a traditional phone. And the technology has improved markedly such that the gap in the difference in sound quality is quickly coming to a close. The potential of VOIP is leading nearly every telecom company into this arena.
"We are interested in a number of companies which have business lines related to VOIP. Israeli company Audiocodes Ltd. (AUDC NASDAQ), is among the early leaders in VOIP and was added to our Model Portfolio last month. Yet another Israeli VOIP company is MindCTI (MNDO NASDAQ), which develops billing software for VOIP and has been in our Model Portfolio since May. MindCTI sells such software to telecom providers globally. MindCTI has a market cap of about $94 million and a book value of $47 million, most of which is cash. We find the valuation quite reasonable, with the stock trading at about 15x estimated 2004 EPS.
"Another Israeli company which reported a terrific quarter and has been added to the Model Portfolio is PowerDsine Ltd. (PDSN NASDAQ). PowerDsine sells Power-over-Ethernet products. Their products enable the capability of delivering and managing electrical power over data network cables. One of the disadvantages of VOIP phones, historically, is the requirement of electrical power. That means no power, no telephone service. PowerDsine is changing that. The firm is a leader of the rapidly growing Power-over-Ethernet (PoE) technology that allows power to be transmitted over the same network cable as data. PoE minimizes the number of wires that must be used in order to install the network, resulting in lower cost, less downtime, easier maintenance and greater installation flexibility. In the company’s latest reported third quarter, sales increased 72% to $11.0 million. Earnings per share grew to $.04 on a GAAP basis from a loss in the year-ago third quarter. PowerDsine completed their initial public offering of 6 million common shares on 6/10/04 at $11.50 per share. Clients of Oberweis Asset Management own 105,000 shares. These shares may be appropriate for risk oriented investors.
"Another idea in this area is Ixia (XXIA NASDAQ), which has also been to our Model Portfolio. We are not sure if the ticker symbol was deliberately designed to be confusing, given the company name, but the numbers make it all worthwhile. Ixia makes equipment to generate and analyze data traffic on high-speed networks including VOIP networks. Cisco is their largest customer. Ixia’s products allow for complex IP networks and applications to be validated by testing the networks functionality and reliability under real world load environments. The company’s test solutions generate, capture and characterize network traffic and provide valuable definitive performance and conformance metrics. In addition, Ixia’s IxVoice test product allows for the testing of developing VOIP networks. In the firms’ latest reported third quarter revenues increased 39% to $30.1 million. Ixia’s third quarter earnings per share grew to $.07 from year ago levels of $.04. Clients of Oberweis Asset Management own approximately 410,000 shares. These shares may be appropriate for risk oriented investors."