THE explosive growth of the personal computer market has beensent into overdrive by the huge rush to join the Internet, theworldwide computer network that allows users to tap into everythingfrom cookery notes to hard-core pornography for little more thanthe price of a local phone call. With more than 40 millioncomputers linked to the Net, there are inevitably opportunities forinvestors. Two companies that stand to benefit are Unipalm andDatrontech.
Unipalm is growing sales in its most promising line of businessnot by a respectable 10 per cent a year but by 10 per cent a month.The second company, Datrontech, is a distributor of memory upgradesand other accessories to enhance personal computers. Between 1990and 1994, its sales grew from pounds 8m to pounds 86.5m, whileprofits quadrupled, with more of the same expected for the currentyear.
The growth of these companies is rooted in the explosiveworldwide spread of computer technology. Computers outsold carslast year, with 45 million PCs sold worldwide. By 2000, annualsales are expected to exceed 100 million units, which meanspersonal computers will be outselling televisions. This growth iscreating an amazing number of opportunities. Shares in such USgiants as Intel and Microsoft, which supply respectively themicroprocessors and the key software packages, are powering to newhighs almost daily, in a boom that is lifting the entire US stockmarket. The excitement is starting to infect the UK stock market,where small companies such as Unipalm and Datrontech are growingeven faster.
There are two businesses within Unipalm, though increasinglythey are converging. The old Unipalm is a distributor of productsto help corporations link their computers in the office (local areanetworks or LANs) and between offices (wide area networks or WANs).As the number of computers in LANs and WANs has grown, it hascreated the opportunity to use tele- communications networks tolink all computers worldwide through the Internet, which has becomea dominant force in the lives of many as they "chat", "date", swapideas and buy and sell goods and services.
It seems likely that virtually all computers will eventually belinked to the Net, with astonishing implications for many aspectsof daily life.
The second part of Unipalm's business - the more exciting bit -is its subsidiary, Pipex, which links large companies to theInternet via leased phone lines and ISDN lines. Each new customerpays Pipex around pounds 10,000 a year, and its customer base isgrowing at a phenomenal rate. At the time of the March 1994flotation, new customers were being signed up at a rate of between10 and 15 a month. At the time, the group said its target was agrowth rate of 60-100 customers a month in two years' time.
In March this year, the group put on nearly pounds 800,000 ofadditional annual revenue, achieving its objective a year early.Unipalm has also just announced a service for the secure use ofcredit cards on the Internet to promote sales of goods andservices.
The explosive growth initially depresses profits, because thecost of winning and handling customers exceeds first-year revenue.In the year to last Sunday, group profits are expected to bepounds 400,000, with Pipex making a loss of around pounds 900,000.But, as and when the growth rate of new customers stabilises,profits will also explode.
Unipalm's stockbroker, Henry Cooke Lumsden, published a noterecently suggesting profits could reach pounds 1.5m in 1995/96,followed by pounds 2.3m then pounds 6.7m, giving earnings pershare of 22.lp and a price-earnings ratio in single figures at thecurrent price of 170p.
US companies comparable to Unipalm are being floated on 10 to 12times revenue. A similar valuation, based on Pipex's existing 600customers, would take Unipalm's share price to 360p.
Unlike Unipalm, Datrontech is already solidly profitable and -at the current 168p - modestly rated on perhaps 13 times likely1995 earnings if profits climb from an historical pounds 4.4m toan expected pounds 6.5m.
Competition in the personal computer market means that, to keepprices down, PCs are often sold with insufficient memory. This iswhere Datrontech comes in, as it sells the additional memory thatusers often need. The market in memory chips is expected to atleast treble between 1993 and 1998.
Datrontech is reinforcing its strong position in memory chips byexpanding into such areas as CD-Rom players and motherboards(computer "brains"). customers at a phenomenal rate
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