ELON the next CSCO? YES!!!!!, according to today's article in Online investor:
theonlineinvestor.com
August 25, 1999 - Remember Smart houses and Smart buildings? They were all the rage, in theory, in the '80's. There was even a Smart house at Disneyland as far back as the '70s. Everything was on a timer or could be programmed to do various tasks at any time during the day. And there were some Smart buildings with sensors for turning on the lights or the heater. But none of these really caught on with the public. Now Echelon wants to change that.
Echelon (Nasdaq:ELON) is a company that may be the next Cisco Systems. Pretty bold statement. But if Cisco is the nervous system for the web, then Echelon wants to be the nervous system for any enclosed area. (One of their current systems is installed in trains.) They're betting that you're going to want to have your house fully programmable so you can "run" it from anywhere.
Here's just one example: a house that has Echelon-compatible appliances can be surveyed on a computer from any location. Then it can be programmed to do whatever needs to be done at any time. Let's say you're at work and the cable guy is coming. You don't know when but sometime between eight and six is the company's best guess. Fine. You go to work and when the cable guy rings the front doorbell, you go to the computer and instruct the front door to open.
Here's another one: you're running late at the office but need to pre-heat the oven for the roast you're preparing tonight. Just get on the computer, pull up the oven on your screen, put in the temperature setting, and let the oven go to work.
You get the idea: a fully wired house, capable of doing whatever you need done, with the ability to receive instructions by phone or computer. As mentioned above, this isn't new. But there are some things now that make it seem more likely to happen.
The first is to look at who Echelon is working with: Cisco Systems, Microsoft,
Sun Microsystems, Toshiba, Honeywell, and many other top Original Equipment Manufacturers (OEMs). Echelon is all about control systems for business, transportation, industrial and building automation. Much like Cisco, the public won't really know the name because it's the software and hardware that makes everything work, not the appliances that are doing the work.
In addition to the Smart house applications described already, Echelon's products have huge opportunities in transportation, building control, and manufacturing automation. A manufacturer can monitor and control assembly lines around the globe from a single location. In transportation, ships and trains can use these control networks in braking and steering systems.
Reality check: the company has been in existence for over eight years. It went public in 1998 at $8, cratered to $2 and then skyrocketed to $19.75 when the CEO of Cisco, Jim Chambers, said some favorable things about the company. Then the stock came back to earth and went as low as $5.50 before recovering to $12 and now sits at $7. In other words, it's a seatbelt kind of stock.
You can't look at the revenues ($32 million in 1998) or the profits (minus 24 cents a share in '98) to justify the current price. The stock is way ahead of the numbers, though Echelon is expected to break into profitability in 2000, according to the three analysts covering it. And there is a buzz about the stock. Part of the buzz is the management.
Headed by Ken Oshman who was one of the driving forces behind ROLM, which was sold to IBM for big bucks, Echelon has the one of the rarest of commodities: good management. Oshman has already proven himself a very savvy tech guy that can also run a business. He also owns over 5 million shares of the company. (Motorola owns over 3 million shares.) In fact, all current directors and officers of the company own 47% of the stock. This is a big plus. Whenever you look at a company, check out how many shares the officers own. It's listed in the annual meeting memo sent with every annual report. The more shares the officers own, the more focused they'll be on making the company a success.
There have already been rumors about the company that make it move: IBM is ready to make a bid for them; Cisco is going to buy them; etc. You'll hear lots of rumors, and the stock will be volatile. If Echelon can establish itself as the standard for control systems using its LonWorks, the company could be a real home run. On the other hand, there's many a slip 'twixt cup and lip. There's a long way to go before even 1% of the housing has a nervous system. The same is true for buildings. And even if the consumer or businesses want these functions, there are alternative ways of getting the same result.
This stock is not for the faint hearted, the value investor, or the risk averse. But it is one you'll hear more about over the coming years. When you see an appliance bearing the tag of JINI compliant (Sun Microsystems' program) or Universal Plug and Play (Microsoft's program), it means the appliance can be wired to a control system. Most likely that system will be Echelon's.
- Ted Allrich
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