Eleven Picks for Wi-Fi Greatness

Zachman recommends that we take a look at Mesh Networks, a company funded in large part by ITT Industries(ITT Quote). It promotes peer-to-peer networking that enables every device on a network to act as both a router and repeater for all other devices in the network. The slogan, "You are the network," is a very big, cool concept. If it's properly commercialized, it could be a winner. Meanwhile, ITT is a reasonably priced defense electronics and industrial flow-control device maker with a 1% dividend yield; I'll put it on my watch list for 2003.

Reader Phil Herma recommends that we take a look at PC-Tel(PCTI Quote), as its June 2002 cyberPIXIE acquisition makes it one of the few pure software plays in the wi-fi area. PC-Tel's main set of products for wi-fi networks, branded Segue, provides assistance with roaming, one of the key barriers to wide acceptance of the technology. The concept is familiar to anyone who uses a mobile phone. If you had to use a different log-in for every cellular network you used as you traveled from city to city, you'd get frustrated pretty quickly.

The cellular carriers make use of roaming technology to hand your call off from network to network. That ease of use has to be recreated for wi-fi, only on a more localized basis, as wi-fi "hotspots" are much smaller than cellular phone networks. Without roaming capability, you might have to sign off and sign onto various wi-fi networks as you walked from block to block in town.

According to a PC-Tel spokesman, the Segue business is expected to provide a material level of revenue in the second half of 2003 as it transits from trials at the carriers into commercial usage. Even if that occurs, it will still be just a small part of PC-Tel's operation, which continues to be focused on conventional modem software. But the stock is not too expensive, selling for around three times sales and just a bit over book value.

Royce & Associates, the excellent small-cap fund manager, is the largest institutional holder of the shares, owning 11% of the company. Whitney George, portfolio manager at Royce, said his team was impressed with PC-Tel's intellectual property, strong balance sheet, double-digit revenue growth and history of profitability. "A strong balance sheet and low entry price will buy us time for industry conditions to turn around," he said. I'll put PC-Tel on my watch list, too.

Wi-Fi Watch List Keep an eye on these in 2003
Symbol	Company	Jan. 6 Closing Price	Market Cap	Price/Sales
ISIL	Intersil	$15.95	$2.1 billion	3.6
BRCM	Broadcom	18.71	5.1 billion	4.8
PCTI	PC-Tel	7.12	141 million	3.5
MXIM	Maxim Integrated Products	38.04	12 billion	11.4
RFMD	RF Micro Devices	8.20	1.3 billion	3.4
INTC	Intel	17.34	114 billion	4.2
HRS	Harris	28.26	1.8 billion	0.99
ITT	ITT Industries	60.05	5.5 billion	1.14
VZ	Verizon	43.50	120 billion	1.8
DT	Deutsche Telekom	14.18	59 billion	1.4
LVLT	Level 3	4.98	2.1 billion	0.82
Source: MSN Money

Greg Lacefield and several others recommended a look at T-Mobile, the German cellular services giant that runs the hotspots in Starbucks nationwide. You have to give them credit for being early, and the T-Mobile operation, formerly known as VoiceStream in the U.S., does have an impressive cellular network footprint in the U.S. It's a division of the giant Deutsche Telekom(DT Quote), so there's not much point in taking an investment there just because you like its wi-fi business.

But on the other hand, Deutsche Telekom does offer a 2.5% yield, and it's not trading for much more than book value after the bear market has done its part to shred valuations. I'll add it to my watch list because European stocks have a good shot at decent performance this year anyway.