Interphase: H-P Won't Phase Us Out

By Dave Marino-Nachison (TMF Braden)
December 27, 1999

News that a relationship with a key customer might be endangered hurt shares of enterprise network connectivity equipment company Interphase Corp. (Nasdaq: INPH) this morning, continuing a slide that has pulled the company's shares back down toward its midsummer levels.

Interphase revealed via press release Thursday evening that computers, peripherals, and related services company Hewlett-Packard (NYSE: HWP) won't buy a particular product from it in 2000 that accounted for "substantial sales" to the company this year. The hard facts: Interphase was among the companies that responded to Hewlett-Packard's request for a quote on a 33Mhz Fibre Channel adapter but wasn't selected. The news sent Interphase shares down approximately 14% in morning trading.

Investors had reason to react strongly on fears that Interphase and Hewlett-Packard might be drifting apart. Hewlett-Packard, according to Interphase's most recent annual report, made up 41% of the company's 1998 sales -- up slightly from 1997 -- and was the only client that accounted for more than a tenth of the company's total revenues for the year.

Interphase CEO Greg Kalush insists that things are copacetic. "We believe that our relationship with Hewlett-Packard will continue to expand in 2000," he said in the company's statement. "Hewlett-Packard has informed Interphase that it ranks among its highest-quality suppliers. Interphase will continue to develop a broad range of high-performance solutions for Hewlett-Packard."

"In addition," Kalush noted, "we remain optimistic about the success of our next generation Fibre Channel products to be released in the first quarter of 2000." Given the nondescript nature of the company's news release in terms of the effect -- if any -- of the Hewlett-Packard news, investors interested in Interphase might instead want to use this development as a signal to watch the company's Fibre Channel efforts closely.

Fibre Channel is the latest rage in high-speed connections between the hardware and software products that connect servers and data storage devices, and in recent periods it's been far and away Interphase's fastest-growing source of revenue and earnings growth. (The company has been moving out of the voice-over-Internet protocol business this year, in part to focus on Fibre Channel work.)
Other companies are capitalizing, too, as evidenced by this November Fool News article on JNI Corp. (Nasdaq: JNIC). That's what investors might want to keep in mind when considering Interphase.

Related Links:
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Fool News, 11/1/99: "JNI Goes From Hot to Hotter in Days Following IPO"

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