At the micro level, the upcoming report by Cisco Corp (Nasdaq: CSCO) and the conference call (see conference call transcript) by CEO and president John Chambers will have a substantial influence on trading in tech stocks later this week, with the focus placed squarely on those companies that work with Cisco. These span the entire food chain of the telecommunications equipment sector, especially chip manufacturers such as Marvell Technology Group (Nasdaq: MRVL), Broadcom Corp (Nasdaq: BRCM), and others.
One of the small Israeli stocks currently in my portfolio PowerDsine (Nasdaq: PDSN), is beginning a comeback because of Cisco. It has risen 17% since the beginning of 2006, to complete a 36% jump since the tough warning of mid-December 2005. Nasdaq itself, on the other hand has fallen 5% since the beginning of the year.
In the last two days alone, PowerDsine rose more than 13% on high volume to close at more than $8 for the first time since May. It reached that price back then due to a ‘false alarm’ at Cisco. Since almost its first day as a public company two years ago, PowerDsine has been traded as a “Cisco dream.” Analysts at Smith Barney went even further, describing it as a “Cisco call option”. Cisco was always a potential major client, but preferred to work with PowerDsine’s competitors, although everyone hoped that a relationship between the two was in the offing. As an OEM customer, Cisco has tremendous significance for PowerDsine since it controls more than 60% of the market in which PowerDsine operates transmission of power over telecommunications networks, or PoE (power-over-Ethernet).
One popular application in this field is power-over-Ethernet for VoIP handsets, which have become a standard appliance in many large enterprises. Most such handsets are manufactured by Cisco or Avaya Inc. (NYSE: AV), a PowerDsine customer. In the not-too-distant future, office laptops will be powered by the Internet lines to which they are connected without the need for a cumbersome charger which needs to be carried around. PowerDsine will probably sign an OEM agreement with Cisco, although the two companies have had a business relationship at various levels of cooperation for more than a year. Rumor has it that Linksys, Cisco’s subsidiary that specializes in home and office wireless networks, has already integrated PowerDsine’s PoE in its new launches.
For more than a year, Cisco has been describing PowerDsine as a member of its “Technological Development Partnership”, and it often participates in Cisco’s trade shows and marketing conferences. All that is needed now is a small push to elevate it to the status of OEM supplier, although for PowerDsine this will be a monumental leap forward.
In its conference call on the second quarter results, PowerDsine management indicated that the company would move to profitability in the third quarter, with sales rising 13% from $9.5 million in the second quarter. The company has $3.4 per share in cash, and if Cisco does indeed become an OEM customer by the end of this year, 2007 could see the big turnaround that PowerDsine’s investors have been dreaming of since it was floated back in 2004.
PDSN 1-yr Chart
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.