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October 28, 2005 Stock Pick: Zhone Technologies, Inc. (ZHNE)

Stock Price: $2.26

We first released ZHNE as a stock pick on February 1st of this year when it was at $2.08. ZHNE reached $3.81 on July 6th and has since dipped significantly below its book value of $3.55.

Zhone Technologies, Inc. designs and manufactures network equipment for network operators worldwide. Zhone's products allow network operators to deliver a rich array of voice, data, video, and entertainment services over their existing networks while simultaneously retooling for converged packet based voice (VoIP) and video (IPTV) over copper or fiber access lines.

In our first stock pick, we stated that ZHNE had revenues of $28.1 million. In an earnings report released yesterday by the company, revenues came in at $40.6 million. Costs are expected to go down as their recent acquisition of Paradyne is integrated. Paradyne is also creating new market opportunities within the voice, video, and data space including VoIP and IPTV.

IPTV is Internet Protocol Television, its one of the latest technologies emerging through broadband. Long term, it looks as if all our communication needs will be through the Internet. The Internet is the cheapest and most versatile medium. ZHNE is well positioned to take advantage of the IPTV space.

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