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Wary Investors Punish Aware Over Talk Cisco Link Is Fraying

The DSL firm's execs dismiss rumors it's being supplanted by GlobeSpan as Cisco's main supplier.

SAN FRANCISCO -- Aware (AWRE) , a developer of systems used for high-speed Internet access, this week saw its market value slump 20% over two days amid speculation that an upstart competitor will supplant it as a supplier to Cisco (CSCO) .

Bedford, Mass.-based Aware is hoping to capitalize on the long-awaited deployment of high-speed Internet services by telephone carriers. Aware licenses its software to chip manufacturers such as




Analog Devices


, which in turn develop digital subscriber line systems.

On Thursday, Aware's stock finished at 40 1/2, down 10 1/4 from Tuesday's close, amid talk that


, set for an IPO in early summer, has displaced Aware and its partner Analog Devices in supplying DSL systems to leading networker Cisco. Aware and some of its key investors dismiss the rumors as false, and the stock was rebounding Friday, up 3 3/16 to 43 11/16.

But some of the slide was also blamed on Aware's decision to replace its auditors, prompting nervous speculation on Internet bulletin boards. In late May, Aware hired


to replace

Deloitte & Touche

, according to documents filed Tuesday with the

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Securities and Exchange Commission

. Deloitte & Touche had been Aware's accountant for three years; Aware's filing says it had no disagreements that figured into its audited statements. Aware CFO Rick Moberg says the company made the change because it wanted a firm that was experienced in handling license royalties and international tax issues.

Cisco is developing separate product lines based on both GlobeSpan and Aware technology. In the first quarter, GlobeSpan drew two-fifths of its revenue from Cisco, which will be a 4% owner in GlobeSpan after its IPO. Lucent, which spun off GlobeSpan three years ago, will have a 7% stake.

GlobeSpan doesn't seem to present a threat to Aware right now. It hasn't even shipped a competing product that operates with the same technology as Aware's, according to GlobeSpan's SEC filings. GlobeSpan wasn't available to comment for this story. A Cisco spokesman declined to comment on particular vendors, but said the company relies on numerous vendors for chips. Officials at Analog Devices couldn't be reached for comment.

"Is it possible they'll win in the future? Sure," says CFO Moberg. "Have they displaced us? No." He added that Cisco executives confirmed with him Thursday that Cisco still is developing products using technology from Analog Devices, which licenses Aware software. He doesn't know GlobeSpan's status with Cisco.

Rattled investors also dismissed the rumor as just talk. "I've turned this thing upside down," says Steven Schuster, portfolio manager with

Gemina Capital

. "I've turned over every rock, and there is not one shred of truth to the rumor." Gemina owned more than 1% of Aware as of mid-March.

GlobeSpan, which is being underwritten by

BancBoston Robertson Stephens


Donaldson Lufkin & Jenrette

, filed its final prospectus May 28. The rumors surrounding Aware and its relationship with Cisco have emerged as GlobeSpan has become more visible among Wall Street professionals. Bulls insist Aware, Analog Devices and Cisco remain tight.

"We think

Aware and Cisco are working particularly closely now that mass-market rollouts of ADSL service are just over the horizon," analyst Charles Pluckhahn with


, an investment bank based in Little Rock, Ark., wrote in a research note Thursday. "We think the rumor-mongers got their rumor a little garbled." Stephens has no underwriting relationship with Aware. Pluckhahn rates Aware a buy.