TECH TALK
By Paul Motter (TMF DotCom)

NEW YORK, NY (May 27, 1997) -- Networking stocks are back, and aren't we all relieved? Shares of many networking stocks are up substantially in May, but exceptionally notable are 3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %>/US ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %>, CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>, and ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>. The 1600-pound gorillas, MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> and INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> seem to be leading the pack. The theme seems to be "the bigger the better" as mid- to large-caps are healthy but many smaller "yet-to-be-profitable" companies continue to lag.

America Online

Based on recent upgrades from various analysts, the value of shares in AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>, are on a tear. Having ended 1996 at a mere $33 a share, the stock now hovers in the area of $54. AOL recently surprised analysts by posting earnings of $0.02 for the most recent quarter.

The latest upgrade came from Cowen & Co., which rated AOL a "strong buy." Rumors, not confirmable at the present time, are for a "whisper" number of $0.09 for next quarter from Cowan, though most analysts are sticking to a $0.02 estimate.

Oppenheimer and Co. initiated coverage of AOL with a "market perform" rating on May 21 and Hambrecht & Quist initiated coverage of the shares with a "buy" rating on May 5.

H&Q's research analysts wrote: "While conventional wisdom predicted AOL would be a casualty of the growth of the Internet, the opposite has occurred. It is one of the few Internet services with enough critical mass in terms of users to offer advertisers the type of reach most often associated with more traditional media."

The key word here is "advertisers." AOL is uniquely positioned as being more than an Internet provider, though it is often lumped into that category. AOL is a content provider and has a reputation for having the most "user-friendly" interface in the market. Even your grandma could figure out to use AOL e-mail, and that is exactly the way AOL wants it. The type of people who are AOL subscribers are very often not Internet experts, they are citizens who happen to have a computer modem.

The largest advertisers (by industry) on the Internet are currently business and financial services, followed closely by computer/technology related companies. But other types of industries are also represented, for which AOL is uniquely qualified to offer a better advertising vehicle. Travel is a good example, as are transportation companies such as auto-makers. Generally the readers of content areas related to such sites are more affluent with more disposable income, but are often not as computer savvy as the average Internet user. AOL has the unique advantage of being able to concentrate related yet specialized areas of like-minded content within a common, easy-to-find interface. This is a boon to advertisers who can recieve more "hits" just by virtue of their cyber location. In addition, AOL is also uniquely able to offer package deals to advertisers to get their message in different sites simultaneously.

Another aspect of AOL that differentiates it from the standard Internet service provider (ISP) is brand recognition. Someone who tells a retailer, "I saw your wares on AOL," is being a lot more specific than "I saw it on the Internet." America Online as a tradename is on its way to becoming as recognizable as Kleenex. One cannot say the same for any other ISP.

Amati Communications

ADSL equipment maker and DMT patent holder AMATI COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMTX)") else Response.Write("(Nasdaq: AMTX)") end if %> reported third quarter losses of $2.3 million, or $0.12 a share, a penny short of estimates compared with the same period a year earlier.

For the three months ended May 3, sales were $3.6 million, 2% lower than the prior year's third quarter sales of $3.8 million when Amati reported a loss of $498,000 or 3 cents per share.

Shares of Amati spurted briefly last month as rumors broke concerning a possible announcement by GTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTE)") else Response.Write("(NYSE: GTE)") end if %> that they would reach an agreement to take on Amati as their official ADSL modem provider. Such an announcement did not materialize, however GTE did announce the expansion of a critical ADSL trial involving influential technology experts in Redmond, Washington. Several MicroSoft employees will be newly included into the GTE/Amati trial there.

Sierra Semiconductor

SoundView Financial Group Inc increased its 1997 earnings estimate for SIERRA SEMICONDUCTOR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SERA)") else Response.Write("(Nasdaq: SERA)") end if %> to $0.93 a share from $0.91 a share and left 1998 estimates unchanged at $1.06 a share. They raised their near-term price target to $27 a share from $20 a share and left their rating unchanged at short-term buy and long-term hold.

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