After today's stock action, I've spent several hours trying to figure out where I might have mis-judged Terayon. If anyone doesn't want to slog through all this, I highly recommend you at least read the Telegate financials listed towards the end.
Before I begin, to anyone who reads the TERN thread, let me quote from Rakib's CC comments re: wireless:
Q: Strategic focus in data vs. video?
A: Strategy is to cover all pieces of broadband puzzle. Imedia gives video and voice over cable; Radwiz is DSL --- more specifically SDSL. Terayon building new platforms across the board, including DSL and cable. Won't exclude possibility of more acquisitions --- Positioning for 2001 --- toronado phase of market. Strategic move into wireless a possibility, we might look at that. Not necessarily this year. We are in DOCSIS fray. We will start selling DOCSIS modems between this Q and next --- our own will see a large penetration into US market. Building next gen platform, which will integrate data/voice/video. Working on circuit switch mode. VoIP, and hybrid --- circuit and VoIP. CherryPicker --- making it applicable to DSl world.
Q:: Wireless?
A: Studying and exploring. Not significant market in 2000. Must continue to position in cable and DSL. Throughout year --- making strategic moves, possible acquisition in wireless when it's clear who will be winner.
Okay, let's get started. We'll call it "Looking Under the Hood," or "Where's the Beef?"
I believe even Terayon shareholders recognize the detour S-CDMA's taken regarding DOCSIS. However, someone posted that Gilder's report claimed TERN would benefit from S-CDMA over DSL. So, I went in search of clues, first at Raychem Electronics.
Raychem Electronics products:
raychem.com
An ADSL search brought up several product announcements for multiplexers:
The new Miniplex UDC-24 system is a unique integration of six Raychem Miniplex UDC-4 systems into a single enclosure with wire-handling and interconnection characteristics that provide a simple, fast and tech-friendly one-person installation. . . .
"the new Miniplex UDC-24 system is the perfect data enabling tool that allows Telcos to clear and dedicate binder groups for the increasing demand of ADSL services."
An SDSL search turned up nothing.
So, no proprietary DSL of any flavor. Only enabling products. And, please, don't even attempt to hype multiplexers. They're a dime a dozen and require the expertise of a door-stop to develop. (Okay, a little exaggeration, but you get the idea.)
Switching to Radwiz homepage:
radwiz.com
Under "highlights" there's mention of single pair sDSL. Also a mention of their access concentrator's ability to facilitate ADSL:
VDAS-3000TM is the COT access concentrator of the IPTLTM system. It contains all the required interfaces towards the data and voice backbone. VDAS-3000TM has broad transmission interfaces: E1/T1, DS3/E3, Fast Ethernet and analogue POTS. At the transport level the VDAS-3000TM facilitates ATM, Frame Relay V5.2 and even the more futuristic VB5. The VDAS-3000TM converged?services platform conveys any?service to the customer premises using xDSL modems that incorporate RADWIZ?s EAsDSLTM technology.
And, finally, an SDSL IAD slated for launch in 2000:
radwiz.com
Maybe not as bad as door-stops, but I certainly didn't find anything whiz-bang in their product line-up. Thinking maybe I missed something from the parent company, I searched Terayon's product listing from their homepage:
terayon.com
Unless I'm blind, there's no mention of CDMA for DSL. Did I understand Gilder correctly --- that TERN has a product that uses their proprietary S-CDMA technology for DSL?
Looking further afield, I ran across some information on Imedia's Cherry Picker:
An article by Loren Wirbel noting some competition:
multichannel.com
Then an article on Cisco buying V-Bits:
vbits.com
Thank you for your interest in V-Bits, Inc.
On December 6th, 1999 Cisco Systems completed its acquisition of V-Bits, Inc. We've provided some key links to help you learn more:
. . .
V-Bits is a leading provider of standards-based digital video processing systems for cable television service providers. V-Bits's products will enable service providers to offer digital video services over cable television networks. V-Bits's technology enhances digital video distribution and programming by adding or dropping specific channels, inserting local content and advertising, and enabling next-generation services such as video on demand. V-Bits's technology expands Cisco's broadband vision to deliver next-generation solutions and give cable operators the ability to offer a complete suite of data, voice and video services delivered over a single streamlined multiservice digital cable network infrastructure.
It's pretty clear Imedia has some stiff competition. I've also been told their work with TCI has been terminated. Since I'm having a heck of a time finding value, I welcome an update.
Next on the list: Telegate. Their homepage is gone, but I did find a press release from ECI that indicates the access system "Multigate" is also based on S-CDMA:
ecitele.com
. The Multigate system was designed and developed by Telegate Ltd., an affiliate company of ECI Telecom.
In addition, ECI Telecom, in cooperation with Terayon Corporation, provide a unique high-speed data access product, which offers robust transmission over HFC infrastructure. Terayon is involved in the development of cable modem systems that support 10 Mbit/s symmetrical throughput with high immunity to upstream noise and impairments.
Both systems are based on Terayon's special S-CDMA (Synchronous Code Division Multiple Access) second generation modem, that enables consistent, high-speed, two-way communication over cable network environments. Supporting high-performance data communication over fiber/coax facilities, the modem's high noise immunity level was demonstrated during extensive and harsh environmental testing in Telenet Operaties' CATV networks.
Question: Has Telegate developed anything not based on S-CDMA? What are their plans? If TERN can't get US contracts for its own S-CDMA, how will they benefit from Telegate's?
Another press release shows ECI sold its position in Telegate to Terayon:
ecitele.com
What are the current arrangements between ECI and TERN? Are they continuing to deploy Multigate products?
Looking at Telegate's financial disclosure, I see for the year ending 1998 they had a loss of 8.50 per share; for the first 9 months of 1999, they lost 8.16 per share. For those who don't know, this is the company Terayon exchanged for 2.2 million shares.
From the 8-K:
Dollars in thousands:
As of December 31, 1998, the Company shareholders' deficiency was$ 6,111 and its working capital deficiency was $ 1,778. In 1998, the Company had a loss of $ 6,010 and a negative cash flow from operating activities of $ 5,061. The Company's management anticipates a negative cash flow from operating activities in 1999, in the amount of approximately $ 2,500, and considers that the Company will require additional financing in order to finance its activities in the future. Accordingly, there is substantial doubt whether the Company is able to continue as a going concern.
Management's plans to address these issues include the following:
In the near future, the Company expects to sign a convertible loans agreement in the aggregate amount of $ 7,000 with several new investors. In addition, the Company is in the process of raising additional $ 6,000 - $ 10,000 from an investment bank. Management believes that existing cash balances, expected operating results and the anticipated sources of financing will be sufficient to support operations over the next twelve months.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and accordingly do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities or reclassifications which might be necessary should management be unable to satisfactorily execute its plans which then may result in the Company's inability to continue as a going concern.
Scroll down and you'll find loans outstanding, as well:
U.S. dollars in thousands, except per share data
The aggregate principal amount of loans is composed as follows:
(1) $7,000 were received during the third quarter of 1999 from new investors:
(2) $2,150 were received during the second quarter of 1999 from an existing shareholder.
(3) $2,400 were received during the fourth quarter of 1998 from an existing shareholder.
In addition, the Company granted options Series A,B,C and D to the shareholder and to the new investors. The exercise price of the options and the number of options are dependent upon the volume of sales of the Company during the years 1999 and 2000, as determined in the agreement.
The options are exercisable upon the earlier of:
(1) Series A and C: December 31, 2001; Series B and D: December 31, 2002.
(2) The initial offering of Company's shares to the public.
(3) A merger or acquisition pursuant to which the Company is not the surviving entity.
c. On July 15, 1999, shareholders' loans in the aggregate amount of $2,797, including accrued interest in the amount of $ 297 thousand were converted into 129,698 Ordinary shares of the Company.
d. On October 2, 1999, the Company reached an investment agreement whereby an investor will invest $6,500 in the Company in consideration for 240,741 Ordinary shares.
In addition, the Company granted warrants to the investor for the purchase of Ordinary shares, entitling the investor to purchase 214,500 Ordinary shares at an exercise price of $35 per share during the period from date of agreement until the earlier of:
1. The initial offering of Company's shares to the public.
2. The sale of substantially all of the assets or the shares of the Company.
3. December 31, 2001.
e. On October 14, 1999 the Company's shareholders signed a share purchase agreement with Terayon Communication Systems, Inc. ("Terayon") pursuant to which Terayon will acquire all of their shares and related warrants in the Company in consideration of 2,200,000 shares of Terayon plus cash equal to the Company's net cash as of the closing date less $ 2,000.
On Oct. 2, 1999 TERN closed at 48.87. Considering Terayon bought the company 12 days later, on Oct. 14, I'd say that was pretty good timing.
Okay, I'm tired. If anyone can show me what I'm missing, I'll be grateful. I know Gilder's ga-ga over CDMA, but I'll be damned if I can see where Terayon's benefitting.
For anyone tempted to suggest S-CDMA will become the standard, I suggest you read this week's SEC filing:
>>>>>
In November 1998, CableLabs selected us to co-author a technical specification for DOCSIS 1.2, an enhanced version of the DOCSIS cable modem standard based in part on our S CDMA technology. Since then, CableLabs has reaffirmed its intention to add advanced upstream physical layer ("PHY") capabilities to the DOCSIS specifications as enhancements; however, CableLabs has modified its plans for how the specifications will be created. In September, 1999, CableLabs indicated that it wants to proceed with the advanced PHY work on two parallel tracks: one for the inclusion of our S-CDMA technology, as proposed by Terayon; and, one for the inclusion of Advanced TDMA technology, as proposed by other companies. CableLabs wants work to proceed in parallel on these two complementary technologies, but the intention remains to include both as operating modes in a future version of the DOCSIS specification, consistent with the original plans for DOCSIS 1.2. As part of the new plan to add advanced PHY capabilities to DOCSIS, CableLabs has dropped reference to what was formerly called DOCSIS 1.2, the name given in November to the specification that includes advanced PHY.
CableLabs has requested that we submit a prototype of a DOCSIS system that incorporates an S-CDMA advanced PHY capability for testing. CableLabs has stated that if the testing of this prototype reveals that the S-CDMA advanced PHY works as claimed, and if the costs for adding S-CDMA to DOCSIS products are in line with estimates, then it is highly likely that it will add S-CDMA advanced PHY capabilities to a future version of the DOCSIS specification.
There can be no guarantee that the prototype we submit to CableLabs will demonstrate the level of performance that CableLabs seeks, or, that even if it does meet performance expectations that CableLabs will incorporate the technology into a future version of DOCSIS specifications. In addition, if CableLabs does proceed to include S-CDMA in a future DOCSIS specification, there can be no guarantee that the DOCSIS S-CDMA specification will be the same as the specification we incorporated in the prototype submitted for tests.
If CableLabs does not adopt an enhancement to the DOCSIS specifications based on S-CDMA technology, or if it adopts a version that is substantially different than what we propose, it is likely our future revenues and operating results will be adversely affected. It may also cause us to incur substantial additional research and development expenditures to adapt our specifications to the version adopted by CableLabs.
CableLabs has not established a schedule for adding either the S-CDMA or Advanced TDMA capabilities to the DOCSIS specifications; although, CableLabs has indicated that they want to proceed expeditiously.
Delays in the establishment of a firm specification for S-CDMA in DOCSIS could harm our plans to sell DOCSIS compatible modems and headend equipment. In particular, if the final DOCSIS S- CMDA specification is not approved prior to the time when the company is ready to ship DOCSIS products with S-CDMA features included, then we could face two choices. The first would be to delay the introduction of those products until the DOCSIS S-CDMA specification is released. The second would be to introduce the S-CDMA features as proprietary enhancements on top of a standard DOCSIS product. Either one of the choices could harm revenues and operating results.
We have already given CableLabs assurances that we will contribute some aspects of our proprietary S-CDMA technology to a royalty-free intellectual property pool, if S-CDMA is included in a future version of DOCSIS specifications. This royalty-free pool has been established by CableLabs to facilitate the participation of as many vendors as possible in providing equipment that is compatible with the DOCSIS specifications. As a result, any of our competitors who join the DOCSIS intellectual property pool would have access to some aspects of our technology and will not be required to pay us any royalties or other compensation. If a competitor is able to duplicate the functionality and capabilities of our technology, we could lose some or all of the time-to-market advantage we might otherwise have which could harm our future revenues and operating results.
>>>>
Please note that in the event the S-CDMA modem meets specifications, and price points, it will not be added to the current specification but to one in the future.
So that throws them back to plan B: launch new products. Are they going to start with Imedia's CherryPicker? Or will they re-engineer Telegate's Multigate? Or, perhaps, wow the market with Tyco Electronic's multiplexers or Radwiz's integrated access devices?
I don't get it, but Gilder obviously does.
Help me out, please.
Pat
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