Pulse: GlobeSpan's Positive News Rare in the DSL Space

These are not good times for tech stocks in general and for DSL sellers in particular, so Thursday morning brought a doubly positive surprise.

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DSL chipmaker GlobeSpan (GSPN Quote) announced today that it would make or beat estimated earnings for the December quarter, the type of positive warning that is rare in its space.

GlobeSpan's upside surprise comes just two days after fellow DSL modem manufacturer Efficient Networks (EFNT Quote) announced that it would miss earnings estimates for the December quarter. Efficient paid for its admission with a fistful of downgrades and a 21% drop in its value Wednesday, the day the cut-rate rally sent most tech stocks soaring.

GlobeSpan's nice surprise let them keep the 18.4% they gained in the rally and then some. The maker of DSL chips closed up 47 cents, or 1.6%, to $28.94.

GlobeSpan provided no details, but it appears that when it comes to DSL, who your customer is makes all the difference. Four of the five biggest DSL network makers are GlobeSpan customers, said Robertson Stephens analyst Arun Veerappen. (His company has done recent underwriting for GlobeSpan.) The company's chips make up part of the network of the central DSL office. That makes planning smoother than for companies close to the consumer end of the chain, where slowing roll-outs and inventory corrections are causing pain.

One week before Efficient's warning, fellow modem-maker Westell Technologies (WSTL Quote) also warned it was coming up short in the quarter and lost 25.9% of its value in a single day's trading. After rising 7.5% in yesterday's rally, Westell lost again today, closing off 6.1%. Both companies have suffered from an inventory correction as DSL providers have had difficulties meeting the strong demand for high-speed access with installations.

"If you look at the number of modems shipped, then look at the number of lines installed, you'll see there are just too many modems," said Dain Rauscher Wessells analyst Mike Brown. (His firm has not done recent underwriting for Efficient.)

Elsewhere, the DSL broadband pathway is littered with the bodies of dead and wounded companies. Just ask NorthPoint Communications (NPNT Quote) and Covad (COVD Quote). They were stars earlier in the year, as they resold DSL service to a number of small Internet service providers. NorthPoint also had agreed to sell out to Verizon (VZ Quote) for $1 billion.

That fell apart after Covad warned that nonpaying customers were hurting revenues. Verizon backed out of the NorthPoint agreement. According to a New York Times report today, NorthPoint's lawyer told a judge yesterday that the company was "on the brink of disaster." It has cut 235 jobs. Covad has twice announced layoffs since late November, totaling 800 jobs. Also last week, Massachusetts DSL provider Digital Broadband went out of business owing Cisco (CSCO Quote) $70 million.

Covad, which closed at $6.25 on Nov. 6, finished the day flat, at $1.63. NorthPoint, which closed at $2 the day the Verizon news got out, began trading at less than $1 the next day and hasn't closed above that since. It closed up about 1 cent today, to 44 cents.