In the tech world, lawsuits may actually be a way to get both the sparring companies to strike a strategic alliance. Back in October, RealNetworks
This week, we saw something similar happen: Covad
Such agreements are critical. After all, to provide DSL service, a company like Covad needs to use telco networks like those that Verizon provides. But even though this is a positive for Covad, the exact magnitude of the impact is difficult to ascertain, since the financial terms of the arrangement were not disclosed.
That lack of clarity didn't stop investors from pushing Covad's stock up 60%. But then again, Covad investors have had little to cheer about. After all, just a few years ago, the company was mired in bankruptcy. And Covad's fundamentals are still worrisome. In the third quarter, the company sustained a loss of $15.8 million, or $0.06 per share, compared with a loss of $13.8 million, or $0.05 per share, in the same period a year ago.
It also can't be overlooked that the high-speed Internet access market is fiercely competitive. Telcos aren't the only players. Cable companies are in on the act. Municipalities are offering their own Wi-Fi services. Even electric utilities are beginning to provide high-speed access through their power lines, as seen in Income Investor recommendation TXU's
With such shaky financial performance, expect the recent surge in Covad's stock price to be temporary. The best news for Covad shareholders would have actually been selling out to Verizon, not striking a partnership deal.
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Fool contributor Tom Taulli does not own shares mentioned in this article.