Craig,
Sorry to see you go. Your presence has had a remedial benefit in that this board has discussed all of your topics prior to your reappearance
and perhaps a rehash of key concerns was in order. At the very least, Ancor postings have been rekindled for a few days.<g>
But please, whatever else we may seem to you (hypsters, etc), we are not remiss in our investigations of Ancor. In fact, I like to think that we
have upheld, and in some ways even surpassed, the standard that you were so instrumental in fostering. To then be admonished by the
Sensei for failing to practice Due Diligence is most disconcerting, and rings false to boot. Maybe some of our signal did lose out to the
noise, unfortunately.
I wish we could answer all the questions you raised to your (and our own) satisfaction, but I see that is not possible to find the answers to some
questions outside the realm of a crystal ball. But before you depart again, let me address some of the concerns you have broached in various
posts.
R&D expenses are sucking away at the bottom line, no doubt, and will continue to suck, as we have been informed. We recognize that R&D is
essential to Ancor's present and future viability and accept that as part of the nature of the beast. Your point that R&D hasn't contributed to
revenues (yet) is well illustrated by Ancor's recently having been taken out to the wood shed for a spanking, but that hand smacks with the short
sightedness of the impatient investor. My point is that without growing R&D, there is no future, and there probably wouldn't be a bottom line now,
much less red ink to bemoan. How would you like to be going into the SAN market against Brocade with just the MKII? SANbox would still be a
wet dream. Ancor would have been bought out for $50M, or less if they had been de-listed and sold for 'parts.'
Will the R&D pay off? It has already (Intel, Sun, MTI, ADI, Inrange, Hitachi, etc.), and it's obviously beginning to contribute to an increase in
revenues. It will need to continue to contribute, and at an accelerating rate, won't it? We will just have to wait and see if it does. Until then, we
can't have both. I'm betting, and yes that's the operative verb here Sofa King, that it will, and we will see revenues accruing both in the near term
and over the long term as a direct result of R&D expenditures.
Not to beat a dead horse, but the Keylabs report was a "proof of concept" lab setup, and the concept was "the Silkworm 2400 is superior to the
Ancor MKII and the Vixel 8100" and they paid to prove it, albeit wihout the benefit of firmware upgrades or configuration tweaking on rival
products. Any "objective" results are therefore tainted with a built-in bias in execution and the numbers cannot be trusted. Even with firmware
and engineering tweaks, it's possible the MKII would still have come up short against the 2400, but we'll never know that, will we? If Ancor didn't
have anything better to sell now than the MKII, we wouldn't need a crystal ball to see the outcome. Thank R&D for that.
When Ashok Kumar projects Ancor as garnering 20% of a future $2 billion FC switch market, he doesn't break out the other 80%. It's possible
that Brocade could own a large piece, if not all, of the other $1.6 billion, by inference. If Zoox' "switch" revenue gets thrown into the mix,
Brocade's share of the other 80% could be less. Maybe Ancor could chew off more than 20%, who knows? But the fact that Brocade is currently
the market leader and will most likely continue to be the market leader does not automatically confer 800 lb. gorilla status, unless that is the sole
criteria you choose to apply. Do you see anybody today, or tomorrow, dancing to Brocade's tune? Quite the contrary.
The fear that Brocade may become the defacto standard for FC switching is unfounded and steeped in a lack of awareness (I don't want to say
ignorance) of the segmented nature of the FC switch market. There is not only one market for FC switches. This is evidenced in the "top-down"
and "bottom-up" respective marketing strategies of Ancor and Brocade, each strategy aimed at particular market segments.
Granted, Brocade's seeming reluctance to participate in an interoperability initiative plays into their immediate hand, but the industry call for
interoperability and manageability across heterogeneous networks is a trump card clamoring to be played. As previously posted, Brocade's
non-membership of the Fibre Channel Alliance and their reneging on InfiniBand were politically influenced business decisions, regardless of
their publically stated reasons. Hardly the picture of a Silver-Back, no matter the posturing and rattling of a few saplings. If and when
interoperability becomes important to their OEM partners, the young gorilla-in-traing will have to comply with his elders' wishes, once again.
For the record, Brocade's path to future growth isn't paved by R&D. Near-static R&D expenditures (25% or less of revs) signals a company
concentrated in the product push-out phase of growth and engaged in a "maintnenance/enhancement mode" of R&D operations. Given their
Cap, I would conclude that the Acquisition road to growth is clearly marked on their map. And equity investments in strategic partners.
Increasing R&D expenditures going forward are likely to be a result of acquisition related R&D expenditures, more than home grown initiatives
We all know execution is the key that unlocks the door to Ancor's future. I'll agree, we will just have to wait and see if management delivers the
money on the promise of R&D. Where's that crystal ball?
Good luck to you and I sincerely hope you continue to drop in occassionally to pinch our ears. Not that we really need it. <g>
Douglas
PS - Heaven help the investor who doesn't know the diff between GAAP and Pro Forma statements. |
