Realizing Metalink's Potential

Feb.14.07 | About: Metalink Ltd. (MTLK)

Metalink’s wireless chip could become the industry standard, provided the market sees it that way too.

I have to admit that after reading a lengthy Deutsche Bank review of home networking, my outlook on Metalink (Nasdaq: MTLK) has changed. This is not to say that I now am shouting “buy, buy” by any means. But I do have a better understanding of the tremendous potential that lies in store for the wireless chip developer from Kibbutz Yakum.

Actually, from the moment that an investor realizes the potential, life just gets tougher, since the difference between success and failure in cases like these lies solely in the company’s management. Once an investor has arrived at the conclusion that a certain company has considerable potential, he then has to decide whether its management is capable of capitalizing on it or whether it will blow it instead. So what’s the problem? The problem is that in every case of good management that fact only becomes obvious retrospectively.

When I first started following Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA) back in 1969, I was not “hooked” on it because I thought Eli Hurvitz was an astute manager and strategist - it was because of the issues at stake. The same thing applies to Chaim Katzman at Gazit-Globe, whose publicly-traded arm on Wall Street is Equity One Inc. Inc. (NYSE: EQY), or Haim Shani at NICE Systems (Nasdaq: NICE), or M-Systems Flash Disk Pioneers founder Dov Moran.

How long do investors need to in order to decide that the company’s management will indeed lead it forward to success? Such a decision can only be made after years of clear business success. Actually, the timing of the investor’s discovery that the company has a good management team is not all that important, since statistics show that the premium on the shares just gets larger as the reputation of the management team and its leader becomes common knowledge. Bear in mind for a moment that, although I decided that Metalink has huge potential, the actual chances of success are 50:50. Put another way, if I was in a roulette game, and had reached the point where I could either place my chip on “management” or “luck,” the odds and risks would be even.

If we accept the views of Deutsche Bank as well as those of a good many other experts, then the new 802.11n wireless frequency standard should solve a number of problems related to coverage in the home. Metalink, unlike Qualcomm Inc. (Nasdaq: QCOM), or Research In Motion Ltd (Nasdaq: RIMM), is not entering this field as the only company with exclusive technology for upgrading such systems, although it does claim that it has a clear advantage. According to Metalink, the chip that it has designed to meet the new standard is the best, technologically, and the most economical, in terms of price. The company believes that it will take the lead thanks to the partnerships it forged to “push” this standard forward.

I, of course, do not have the ability to accurately assess just how right the company’s claims are, but a couple of analysts at ThinkEquity Partners LLC, Anton Wahlman and Eric Kainer, who know a lot more than me, have given some thought to this. ThinkEquity is one of a string of boutique investment houses now flourishing in the U.S. that have been given a tremendous boost in their work following all the troubles at the big investment houses after the bubble burst. As with most such investment houses, ThinkEquity was founded by top-flight professionals, formerly with Merrill Lynch and other big names. Wahlman and Kainer joined from Needham & Company LLC, a large investment house that is renowned for its grasp of technologies.

It turns out that recently, Armando Geday, formerly CEO of the well known U.S. chip company, Conexant Systems Inc. (Nasdaq: CNXT), joined Metalink as CMO. I was not aware that he had joined Metalink. Geday was previously associated with a number of major successes but also, the failure of the 802.11b standard. “A man of this stature, who already failed once in the 802.11 chain, would not have joined a company like Metalink and a new standard without first checking it from every angle,” Wahlman and Kainer write. Having now changed my mind about Metalink, I agree with this view and I now believe that Metalink’s potential is much larger than is apparent from its financial reports.

The ThinkEquity analysts believe that, if Metalink’s technology is indeed better than that of the competitors, and the price is right, its chances of commercial success are extremely high. The company will sail into the battle for the 802.11n standard together with its current partners, Intel Corporation (Nasdaq: INTC), STMicroelectronics NV (NYSE: STM), Sigma Designs Inc. (Nasdaq: SIGM), and Freescale Semiconductor Inc. (NYSE: FSL), all leaders in the field.

Overall, to sum up the ThinkEquity review and judging by the current progress in home wireless networks, Metalink is now heading the group that will fight for the chip that will be the industry’s preferred choice. It is up there in the front line but alongside it are companies such as Marvell Technology Group (Nasdaq: MRVL), Broadcom Corp. (Nasdaq: BRCM) and others, everyone of which is a champion in R&D, marketing and seeing off the competition.

So is this time to rush out and buy Metalink? I am in no hurry. The developments described above will not happen from one day to the next. From the moment the new chip hits the street, Metalink’s success will depend, as I mentioned earlier, on two things: management and luck. What it must do now is meet its own forecast and bring onto the market a chip that has a clear technological, and economic edge over the rival products, and then get the market to believe it.

MTLK 1-yr chart
MTLK 1-yr chart

Published originally by Globes [online], Israel business news -
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.