Terayon, Com21, S-A Lead Tech Surge


Shares of Terayon Communication Systems Inc. rose more than
13 percent last Tuesday after the company announced that its first-quarter revenue and
earnings would exceed analysts' estimates.

And although Terayon's growth has been nothing short
of amazing in the past three months -- it was a $64 stock Dec. 8, and it closed March 8 at
$264 per share -- the cable-modem sector has seen substantial gains as investors are
beginning to see the potential for new cable services becoming a reality.

Aggressive upgrade schedules by most MSOs and the success
of companies like Comcast Corp., Cox Communications Inc. and AT&T Broadband &
Internet Services in deploying digital-cable and high-speed-Internet services has driven
increased demand for equipment, translating into giddy times for shareholders in pure-play
cable-equipment manufacturers.

Companies like Com21 Inc., which has seen its stock more
than double in the past month, and Scientific-Atlanta Inc., which had a 47 percent
increase in the same time frame, are becoming the darlings of technology investors.

But it appears that the investor giddiness is reserved for
pure-play companies in the sector. Although Motorola Inc. -- which has substantial
businesses in wireless communications and consumer electronics -- has seen a 6 percent
gain in its stock price over the past month, its growth has been nothing near that of its
cable peers.

Cisco Systems Inc., which saw a spectacular run-up in its
share price during the past two years, has increased just 5.2 percent since Feb. 8. Again,
this can be attributed to its diverse businesses, including computer-networking equipment.

Josephthal & Co. Inc. telecommunications-equipment
analyst Lawrence Harris said that although Motorola acquired one of the largest cable
set-top-box manufacturers in General Instrument Corp., it is still considered a
wireless-equipment company.

He added that while Cisco is one of the leading suppliers
of cable-modem-termination-system equipment, that segment still makes up a small part of
its overall business.

"It's not enough to say that you support broadly
based telecommunications requirements or equipment," Harris said. "Now you have
to be targeting fast-growth markets. Investors are really looking for narrowly focused
companies in the fastest-growing markets. Cable is certainly one of those fastest-growing

Of the more traditional cable-equipment makers, S-A saw its
shares rise after it announced earlier this month that it would boost digital set-top
production at its plant in Juarez, Mexico, to 1 million in the mid-May to early June time
frame, up from previous estimates that the plant would churn out 800,000 cable modems in
the same period.

As a result, Harris increased his 12-month price target for
S-A to $165 per share from his previous estimate of $125. He also raised his fiscal-year
2001 earnings estimates for the company to $2.05 per share from $1.90.

Terayon, a maker of broadband-networking equipment, has
also seen a major uptick in its stock price, fueled by stronger financial results and
increasing orders from both domestic and international MSOs.

In a conference call with analysts after last Monday's
market close, Terayon said it would report revenue of between $55 million and $57 million
in the first quarter, and its earnings-per-share figures would also exceed analysts'
estimates of one cent, instead finishing the quarter at between three and four cents.

Investors responded the next day, pushing Terayon's
stock as high as $270 per share before it closed at $253.13, up $23.19.

Terayon's stock has been on a wild ride in the past
three months, increasing by more than four times since Dec. 8, when it closed at $64 per
share. The latest rise brings the stock back to the level of a few weeks ago, when it shot
to $266.50 each Feb. 22 after it announced its fourth-quarter revenue.

The latest run was also spurred by Lehman Bros. Inc.
analyst Steve Levy, who revised his 12-month price target for the stock from $125 per
share to $325. In his report, Levy also raised his 2000 earnings-per-share estimates to 23
cents from 13 cents and his 2001 earnings estimates to 60 cents per share from 55 cents.

Terayon spokesman John Hamburger said increased demand for
the company's products was across the board, although there has been a spike in
headends shipped in the first quarter.

"The broadband explosion that we have all been talking
about is really starting to happen," Hamburger said. "We seem to be aligned with
great customers. We have been expanding in several ways across the media, from cable into
copper into wireless. I think we're looking more like a true broadband-networking
company to the major players."