ELON: Revenue Model and other tidbits
I have been in touch with Echelon by phone and email to clarify my understanding of their revenue model. I tried to keep the questions as simple and have pasted their replies to my email and in other cases I am paraphrasing what I was told. I hope this will be useful to some who are looking at an investment in ELON.
Is Elon's system open, but proprietary ? If by the word "system" you are referring to the protocol that underlies such networks, then the protocol is open. Echelon does have patents on the protocol, but Echelon licenses such patents without license fees or royalties. Echelon, like its customers, may and does ship products based on the protocol. The implementations of such products may be proprietary....and... There is not a direct license or royalty stream with respect to the protocol. Echelon does receive royalties. For example, when customers ship products that incorporate the Company's LNS(tm) network operating system, Echelon is entitled to royalties
How does Elon benefit from outside OEM's developing LON products?
If such OEM's incorporate the Company's OEM hardware products, such as transceivers, then Echelon's hardware revenue grows with the OEM's shipments of products. Likewise, if such OEM products are installed, monitored and maintained with a sotware tool based on
Echelon's LNS network operating system, then Echelon receives royalty income when the products are installed.
Is there other software out there that could do what LNS does?
- paraphrasing here: yes and no. There are some solutions that may do some of what LNS can do, but none are as robust, complete, competitive. We are encouraged by LNS acceptance - see recent news from Germany. We are focused on establishing LNS as the Std. and are encouraged by it's acceptance.
If so do makers of this other software pay Elon Royalties?
- paraphrase: It depends on exactly what is contained in their software. If there are any implementations that are protected by our patents then the answer would be yes.
Would it be possible, to the best of your knowledge, for other companies to make a competing product to LNS and not violate any Echelon patents or pay Royalties?
- paraphrase: We believe it is currently not possible to build as complete an operating system as LNS without stepping on our patented technology. We have the best team of Patent Lawyers available and protection of our intellectual property assets is sewn up very tightly.
Will Elon earn Royalties from Neuron Chip sales.?
These royalties are not material to Echelon's long term revenue.
they indicated that their R&D expenditures to support the chipmakers negated the income directly related to Neuron Chip sales.
With respect to incomes generated by node ID's, - this is from their site
Each LONWORKS node has a unique 48-bit ID. Echelon will administer these IDs. Licensees will pay Echelon, or at Echelon's option, the LONMARK Interoperability Association, US $0.15 per ID assigned. This fee covers the cost of administration of licenses and assigning ID numbers. There are no other costs.
Is this administrative fee a royalty?
There is no royalty.
Their comment was that they hoped to be able to earn a lot more than $0.15 per node id, through hardware and software sales. The whole idea being to make their protocol pervasive and the std and they would make money through hardware sales and software implementations.
Can you provide some idea of what % of revenues come from the different revenue streams that exist.(software, hardware, service contracts)
Please refer to Echelon SEC filings, we break out revenue between products and service.
Here is a link: echelon.com
Can you give any estimate of how many iLon Servers Echelon expects to sell in the next year, and what is the price? If I remember Mr. Oshman's previous answer to this question was "gazillions" if you cannot be any more specific in terms of numbers, could you at least confirm this?
- paraphrase: The projections are proprietary information, but lets just say that the companies manufacturing these for us are very happy. The price for one ilon is around $1200, and this may vary depending on the quantity ordered.
I commented that if I looked at projected growth in EPS it would seem that the ilon was a watershed product for the company. The reply was that making the control network accessible from any browser is a key development and that this has been possible for a while, it just seems that people have taken a while to realize this.
Any other pointers you could provide on the revenue model would be useful? For example what does Echelon see as it's largest source of reveue, and what would be the secondary source.?
- paraphrase: that is proprietary information, but you should look at the complete product range we offer including our revolutionary powerline modems and tranceivers capable of working over long haul twisted pair networks and ordinary household wiring. We are the first and as far as we know, and only, company to have ever acheived this capability. The system works flawlessly.
Echelon's PLT Power Line Transceivers offer the most robust, lowest cost means of communicating over AC or DC power lines using low, medium, or high voltage. Designed for use in home, building, factory, and transportation automation applications, the PLT transceivers have earned their reputation for reliability in systems that are deployed all over the world:
Here is a link to powerline tranceivers: echelon.com
Tidbits:
Confirmed that Oshman and Bob Maxfield sit on the board of SnapTrack, recently purchased by Qualcomm and was told that SnapTrack AGM's have until now, been held in their Boardroom.
Confirmed that at ROLM Oshman developed the first computer controlled PBX telephone system using TDM, time division multiplex technology.
One of my conversations was with Gibson Andersen, Vice President (Human Resources) and we were discussing the recent share price. He advised me to take a look at insidertrader.com and note that there is no significant selling by insiders at this point.
BELONG AND PROSPER
David.
PS: I asked if they'd read TFM. The answer was YES. |
