ATM resurgence noted by networkers
ATM technology is making a comeback, providing a needed boost to many networking companies.
In the latest example, BancAmerica Robertson Stephens today upgraded Fore Systems to a "buy" from a "market perform" based on surging demand for ATM equipment in both wide- and local-area networks.
Stock in Fore--considered a "targeted" play in ATM--hit a 52-week high today, trading at 23.63, up .75, at midmorning. The stock has traded as high as 23.06 and as low as 11.5 during the past 52 weeks.
"The underlying conditions and market demand have begun to fall into place to help ATM lead up to the hype and promise of three years ago," said Andy Schopick, analyst with Nutmeg Securities.
Earlier this week, Lucent Technologies bought Yurie Systems for $1 billion in cash, or $35 per share, in a tender offer, citing demand for ATM equipment as a main factor in the decision. The buyout was one of Lucent's largest to date.
"We're starting to see a resurgence in ATM technology," said Matt Barzowskas, analyst with First Albany.
ATM stands for "asynchronous transfer mode," not automated teller machines. ATM switches allow for data transmission at speeds surpassing 600 mbps, and are designed to support the transfer of voice, data, and full-motion video.
About three years ago, ATM was being hyped as the "next great technology." But, as with many technologies, ATM's cost, coupled with too little demand, resulted in lower-than-expected growth rates.
Now that's changing. The demand for higher bandwidth is causing telephone and cable television companies increasingly to turn to technologies such as ATM to build out their networks. In addition, distractions to the telcos and to the cable TV industry--such as corporate reorganizations and the initial surge of buyouts stemming from deregulation--are winding down.
Lucent's buyout of Yurie filled in a "key space" in the company's data networking portfolio, according to company executives.
Companies such as Cisco, Bay Networks, 3Com, Nortel, Ascend, and Xylan also are in the market for ATM technology. Cisco, for example, has bolstered its ATM product line through its acquisitions in recent years of StrataCom and Lightsteam.
Industry executives and industry analysts alike have taken notice of the rapid growth in ATM--at annual rates of more than 60 percent. BancAmerica Robertson Stephens, for example, calls it "one of the fastest-growing sub-segments in the networking industry."
"We're just beginning to see ATM take root and begin to establish its presence as carriers put their switch infrastructures in place [ during the next year or two]," Schopick said.
However, Schopick added, ATM faces competition in the near future from other technologies, including high-speed ethernet technologies such as gigabit.
Like many analysts, he remains bullish on ATM nevertheless. Three weeks ago, Schopick said he raised his recommendation on Fore Systems to "buy" from "hold," citing an improving "fundamental outlook" for the company.