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Analysts optimistic about new broadband provider

Analysts say Tut Systems is an early leader in the market to offer property owners the ability to wire buildings with high-speed DSL networks.

    Tut Systems is seeing some king-sized growth in profits, revenue and its stock price.

    The networking company makes technology that allows property owners to wire apartments, offices and hotels with high-speed Net access. Yesterday, the the company reported its first profit ever, a quarter ahead of schedule.

    Analysts say Tut Systems is an early leader in the emerging market to offer property owners the ability to network their buildings and offer digital subscriber line (DSL) connections.

    Excluding one-time acquisition costs, Tut posted a second-quarter profit of $600,000, or 4 cents a share, compared with a loss of $2.7 million, or 23 cents a share, during the same time last year. Wall Street analysts had expected a loss of 4 cents a share this quarter, according to a survey by First Call/Thomson Financial.

    Second-quarter revenue soared, from $5 million last year to $21 million this year, a 319 percent increase. Since April, Tut's shares have more than doubled, from the low $30s to the high $60s.

    Bigger networking companies, such as Cisco Systems and 3Com, have planted their stakes in the market, as have smaller, younger networking firms such as Copper Mountain and Elastic Networks.

    They are all hoping to capture a share of the market, which is expected to grow from $371 million this year to nearly $2 billion by 2004 in the United States alone, according to market research firm Cahners In-Stat Group. Some analysts believe the market is even larger internationally, such as in densely populated areas like Hong Kong, where a higher percentage of people live in multiunit buildings.

    Financial analysts say Tut is well-positioned for the market niche as high-speed Internet access becomes more popular. More than half the company's revenue already comes from international sales, especially in Asia. Some analysts believe the 9-year-old company will have continued success, while others say competition could eat into its market share.

    Sal DAuria "Tut has a distinctive first-mover advantage," First Securities analyst Syed Haider said in a recent report. "We believe Tut will face increasing competitive pressures as more companies recognize the sizable potential of the (multitenant building) market."

    Even so, larger companies such as 3Com and Cisco have only recently entered the market and are not focusing on the multitenant niche, as is Tut.

    Tut executives are optimistic.

    "We feel we can sustain and even widen the lead we have," said Tut chief executive Sal D'Auria. "With people like 3Com entering the market, it validates the space. We believe lots of others will enter the space. But we have more customers and experience than anybody."

    The company partners with service providers, which sell Tut's networking equipment to property owners. Tut recently signed on British Telecom, which will outfit hotel rooms with high-speed Net access. Tut's other partners include Bell Canada, Darwin Networks and Skyway Partners.

    Tut came out of the gates strong when it went public in late January 1999 with shares reaching a high of $86.56. But since then, the stock has been on a roller-coaster ride, with a steep rise in the past few months.

    While Frost Securities rates the stock as an "accumulate," other analyst firms, such as Lehman Brothers and Dain Rauscher Wessels, rate the stock a "buy."

    "The (multitenant building) market is red hot, and we believe Tut Systems is extremely well-positioned to benefit," analyst Michael Brown of Dain Rauscher Wessels said in a recent report. "We look for Tut to strengthen its leadership position in this relatively new marketplace."