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Leading analyst examines the imaging technology sector in this special Imaging Technology Stocks report from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info533.htm

TWST: To follow up on digital photography, what is the consensus as to where the prices for cameras will go? Will we be seeing them reduced over time?

Mr. Ausnit: Digital camera prices are dropping along with almost all other electronic products, but quality is also improving, leading to some price stability overall, as people move up from 1 megapixels to 2 megapixel to 3 and 4. At a certain point performance becomes more than adequate, at which time I would expect prices to continue to drop. You can think about certain types of products, like digital cameras or digital watches in the same ways: once they keep time well enough or take good enough pictures, you can just see most of the benefit from innovation in price reductions. So currently you can get a 2-megapixel camera for around $200. We’ve heard rumors that Wal-Mart may be introducing a camera at the $130 price point. We’ve also seen very dramatic declines in professional camera hardware prices. Kodak introduced professional digital camera backs that replace film for users like wedding photographers and sports journalists. Models that cost over $20,000 in June and September when they were introduced were reduced by 30%-35% last week. So we’re seeing 30% plus price cuts on products launched about six months ago. In the professional and high-end consumer market, we’ve heard retailers speculate that cameras costing $3,000 in 2001 will cost less than $1,000 in 2003.

TWST: Are there any names in the group that you would say are good long-term options for investors?

Mr. Ausnit: We try to think long term all the time. We try to maintain awareness of catalysts, but the long-term view is the one we think of the most, and that’s why we recommend companies like Xerox (NYSE:XRX), which we believe are benefiting from well-established industry dynamics and hold hard-to-replicate assets. Pitney Bowes (NYSE:PBI) also has very good long-term fundamentals. People were concerned that one-day postal mail would be supplanted by e-mail. That has clearly proved not to be the case. Mail provides a rich opportunity for companies to reach their customers on a regular basis, present new ideas to them and interact. We don’t think Pitney’s customers are going to give that up and move to e-mail. So with 61% global market share of the meter business, a new generation of meters reaching the market, and a very solid fundamental outlook for mail, we think Pitney is well-positioned. The management team is also very high quality. They’re executing a series of small, step-wise maneuvers to acquire service companies to increase their fee business. They acquired Danka Services International, and now professional services represent about 22% of their revenue, and that’s a growth market for them and for the rest of the industry. And they’re acquiring international mail meter competitors, increasing their global market share. They just acquired Secap in France, which gave them about a third of the French meter market. So with a very solid outlook for mail, what I think is a solid outlook for business services, and a very shareholder-focused management team that not only pays a healthy dividend but repurchases about 2% of its shares every year, I think Pitney also has very solid long-term prospects. However, we presently rate Pitney Bowes as Market Perform. We recently downgraded Pitney Bowes on valuation. The company management has indicated that they do not expect to outperform on the bottom line, even if the business improves, as they want to make a series of IT and other types of investments in their company this year if business conditions improve. So with a little likelihood of outperformance, we’ve downgraded the stock. However, we would feel very comfortable recommending Pitney to someone who wanted to place a long-term bet on a solid, well run market leader in a stable to slow-growth market.

This special Report includes:

1) Imaging Technology Stocks - In an in-depth (3,700 words) Analyst Interview, Peter Ausnit, Vice President at Deutsche Bank Alex. Brown, Inc., examines the outlook for the sector including and shares specific stock recommendations.