Unterberg: ECI will benefit from Deutsche Telekom fiber project

Analyst Rich Church maintains a "Buy" recommendation for ECI with a $10 price target.

C.E. Unterberg, Towbin believes that ECI Telecom (Nasdaq: ECIL) stands to benefit from a €3 billion investment by Deutsche Telekom in fiber-to-the node architecture, announced last week. Analyst Rich Church reiterates his "Buy" recommendation for ECI, with a price target of $10. This compares with a closing price yesterday of $7.76, at which price the company has a market cap of $854 million.

"Deutsche Telekom (DT, Not Rated) said late last week at the IFA 2005 in Berlin that it would spend Euro 3 billion on deploying a Fiber to the Node architecture to pass 3 million homes in 50 cities by the end of 2007, provided by T-Com, the carrier’s fixed line unit," Church writes..

"The carrier will pull fiber cables to remote DSLAM cabinets, and then use VDSL2 from the cabinet to the home, allowing transmission speeds of 50 Mbps. Two trials are currently running and the first cities are expected to come on-line in mid-2006.

"ECI Telecom and Siemens (SI, NR) are the incumbent DSL providers for DT.

"We believe ECI Telecom continues to supply its DSL equipment to DT and expect ECI to be a benefactor (sic) of the deployment, although equipment providers have not yet been announced. DT is a 10%+ customer of ECI and while we are not changing our model for this rollout yet, we believe the rollout provides positive visibility into the continued strength of the relationship and the ongoing spending by DT.

"The DT upgrade is consistent with our thesis that opportunities outside of North America are being decided and we believe ECI Telecom can be a key benefactor in both wireline and wireless network upgrades. We believe a 23x valuation is fair, and are maintaining our $10 price target. Risks include effectively integrating the Laurel acquisition, a possible capital spending slowdown and delays of IPTV deployments that could result from problems with other vendors’ equipment or software."

Published by Globes [online], Israel business news - www.globes.co.il - on September 7, 2005

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