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Since the company transformed itself at the end of last year, from the ugly defence duckling that was GEC into the more modern swan it now is, many investors have regarded it as a means of gaining widespread exposure to the technology sector.
The theory goes that since Marconi makes the snazzy equipment that enables telephony equipment to receive data in a fast and efficient manner, it will prosper whatever happens in the brave new information age. In other words it provides the picks and shovels for those involved in the current gold rush.
Initially investors received this creed with gusto and enthusiasm. Marconi shares shot up by over a third to 1095p by the end of last year. Since then though the stock has come back slightly to 754p. This still puts the company on a prospective price to earnings ratio of 46.
This morning the company has announced a significant acquisition. It will pay £391m in cash and shares for MSI, a provider of wireless telecom software. This is the latest in a string of relatively small purchases, which show that Marconi has changed its old defence spots and developed a shiny new technology coat.
MSI not only broadens Marconi's product range into the burgeoning mobile market, it also enhances the group's global reach. MSI has over 100 wireless service provider customers spread over 60 countries. However, this market is still relatively young. Last year MSI made only £60m revenue.
That means Marconi is paying six and a half times sales for MSI, on the hope that growth in this market will be massive in the future. It reckons the specific market MSI operates in will grow nearly 30-fold to nearly £3b by 2002 from just over £100m in 1998.
With over £21b (more than Marconi's current market capitalisation) being bid for the UK 3G mobile licences, it seems as if the operators of such wireless networks are convinced this is going to be the case.
In that case Marconi looks better placed to benefit with this latest acquisition. However, having bought the necessary software, now the hard work will begin. The company must now go out and attract these large customers and convince them that MSI's products will be better than anyone else's.
Being a humble hack who has yet to see a mobile telephone with Internet capabilities I find it next to impossible to judge whether MSI's software is top-notch or not. It would be interesting to see whether any Fools out there have any experience.
Things appear to be progressing well though at MSI. In the first quarter of the current year, revenue rose 38% to £14.6m compared with the same period last year. Marconi shareholders, including TMF Staff Investment Club, will be hoping this trend continues.
Please post any comments to either the Marconi or Fool's Eye View discussion boards.
Related Links
• Marconi FAQ
• Tech Talk -- Unravelling Marconi
• Fool's Eye View -- Shovel Makers