First Pacific: Is It Wired For Winning?

The company is still faceless on Wall Street, and its initial stock offering in mid-July bombed. So why is First Pacific Networks suddenly sparkling? In recent weeks, the telecommunications company has won special attention from Time Warner and MCI Communications, causing First Pacific's stock to leap to more than 11 a share from 5 in mid-November--finally exceeding the initial offering price of 9.

Time Warner's cable unit and MCI have agreed to test First Pacific's technology, called Personal Xchange (PX). Consisting of hardware and software that permit voice, data, or video signals to be routed on a single wire, the system can deliver two-way video and data services over a single optic-fiber cable, coaxial cable, or hybrid wire. PX allows delivery of phone services to customers over the existing cable-TV infrastructure, explains Dan Purjes, chairman and CEO of investment firm Josephthal Lyon & Ross.

`STAMP OF APPROVAL.' Some big investors believe the tests will be highly successful. "MCI doesn't go into any kind of testing project unless it has done its own testing beforehand," says Gordon Capital's Lap Lee, a veteran technology analyst. The test, says Lee, is a "great stamp of approval" for First Pacific's technology. Specifically, the test will provide alternative telephone access to MCI's network, using a part of Time Warner's cable system in Queens, N.Y.

Where regulations permit, PX will enable cable-TV operators to broaden their services by selling excess capacity to long-distance telephone carriers, says Josephthal analyst Jeff Sadler.

Gordon Capital's Lee sees a wide market for PX. In the U.S., the Baby Bells are potentially the big users. In the present system, phone calls are routed through large expensive switches run by mainframe computers. PX can route calls without the need for a main switch, says Lee.

Whispers are that First Pacific will land its first major PX contract by early next year with one of the Baby Bells. One big investor says separate talks are going on between the company and certain foreign telephone carriers. This pro figures that the contract could produce revenues of $75 million to $80 million next year.

One contract could "result in a dramatic jump in earnings--into the $1- to $3-a-share range," says Lee. Based on his own scenario about potential contracts ahead, Lee estimates that First Pacific's stock could appreciate into the 18-to-20 range over the next two years.

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