In fact, both of these companies share some similar traits (although I would imagine they have their differences also) in that both were the product of great teachers from great universities. Both Amati and Lumenon, in my opinion, were trendsetters in their industry.
Either you don't know Amati's history or you've forgotten. Their founder and majority shareholder was their CTO and he never held an executive position. Had it been left to him to run the company, they never would have made it to first base. Because Amati's board was experienced they turned over the management to professionals. They also had a stellar line-up of partners --- Motorola, NEC, Siemens, Texas Instruments --- and never signed away their products to anyone. In addition, they owned the patents on their technology, mostly outright and in a few cases in common with Stanford University. Equally important, they held the ANSI and ETSI standards for DMT-based ADSL. In other words, their technology was the industry standard. Within two years of their going public, Amati had licensed to all their partners as well as to ADI, Alcatel, Ericsson, ECI, Pairgain, SGSThomson, and Fujitsu. The only hold-out was Orckit and they've since licensed.
Of Lumenon in particular, it is a company founded on the intellect and work of two renowned scientists, Drs. Iraj Najafi and Mark Andrews. According to my research both are accepted leaders in their respective fields, i.e., optics for Najafi, and chemistry, particularly sol-gel, for Andrews.
With dream in hand (but little savvy in the world of business, and especially in starting and bringing a company public), they found a listener in Molex. At the time Lumenon was very cheap, less than $1 a share, very speculative, but also very promising (at least what the founders thought they could do was promising). So Molex bit, sure it wasn't for much money, pocket change for a multi-billion dollar company, but an investment that would further the development of Lumenon's dream: a photonic chip made using sol-gel and fairly inexpensive, off the shelf hardware common to the semiconductor industry.
You're forgetting that these two intellects made the decision to go public by acquiring a shell instead of finding funding through ordinary venture capital channels. Their decision, and obvious inexperience, left them without proper financing and eventually led them to strike the deal they did with Molex. Their track-record is anything but reassuring.
Did Lumenon give away the house to Molex? Partly, but not completely. The founders still own enough shares to control their destiny,
If Molex wants to sell the company, they can. If someone else wants to buy the company, they can't. If Molex wants all Lumenon's products, they can have them --- for four years. If they want to end the relationship they can, in accordance with the first year specifications. If Molex wants to take over the manufacturing themselves, they can, and at a fee to Lumenon far lower than they would command on their own. If you can explain how they're controlling their own destiny, then I submit we have a different understanding of the term. Perhaps you mean their personal destinies and there you may be right, though that's small comfort to shareholders.
Molex now has a sizable stake in a company worth more than one billion dollars, and the launch of product is but a heart beat away. I find it comforting to know that Lumenon has constantly been able to tap Molex for funding as needed, and at increasing dollar levels, in fact at one point Molex was paying $23 a share for stock, a far cry from their initial sub-$1 level.
And how much did Molex gain from the sale of those shares? And at what dilution to Lumenon's shareholders? Apart from gaining financing, giving away warrants (or selling shares) to gain business is generally undertaken to get good press. It's a way of buying presence in the market. It becomes part of the company's story. Molex is not a benevolent Godfather. They'll use Lumenon as long as they benefit and if something goes wrong --- the chips don't test out or the competition beats them in price and time-to-market --- they can walk away. They won't lose and more likely they'll make a substantial profit on shares and warrants.
Lumenon has also been able to concentrate on the technology and production techniques without having to worry about marketing since Molex gets everything for one year (well everything they have jointly developed). I note your concern that the agreement allows Molex the right of first refusal for an additional three years. While that is true, it is at then current market prices so the impact on Lumenon?s sales totals will be minimal. Personally I doubt that Molex will be able to handle either the volume or the diversity of chips that Lumenon should be able to produce at that point.
That's why well-run companies hire professional CEOs. They run the company, find funding, negotiate partnerships and alliances, while the scientists and engineers concentrate on developing products and technology. In place of hiring top management --- who would have worked on the company's behalf --- Lumenon's scientist-managers signed away their first four years to one OEM. A partnership so binding they won't be able to develop other partners until that contract expires.
now that Lumenon sports a market cap that can cause nose-bleeds for some, there is a lot of second-guessing about the arrangement. However, that is primarily the result of investors realizing the Lumenon has grown so quickly in its technical expertise that they are, perhaps, even ahead of Molex's claim to fame, the packaging of the chips. Lumenon has developed an in-house pigtailing ability that will compete with its mentor, Molex. At this stage, it appears that Lumenon no longer truly needs the help of Molex. At least that is what I would like to believe. However, an agreement is an agreement and both sides appear to be living up to the contract.
Lumenon's lofty market cap may have clouded their judgment regarding their technical expertise. Reports from OFC were anything but complimentary, but even if their technology were all that you hope --- a big if --- the problem lies in Lumenon's inability to profit. As it stands, Lumenon shoulders the lions' share of the risk and Molex pockets the lions' share of the profits.
So, Pat, my question for you is: Why can you not see the possibility that Lumenon may indeed be a winner? Its technology has produced DWDM chips that equal the specifications of its competitors, but at a much lower cost, with a process that allows for much simpler, and faster production than, say, flame hydrolysis deposition does. Lumenon's sales may be impacted for a year by the Molex agreement, but that is only a temporary blip. In fact, with the much larger, full-scale production facility coming on line in late 2000, it is possible that sales will be much larger (either to Molex, or others) than was originally forecast. This company has taken a tortuous route to being publicly held, but they are here, and they are debt-free, and they are basically a start-up company on the cusp of producing sales. Compared to other start-ups that have either gone public recently, or been acquired, I do not find Lumenon to be a totally unworthy investment. I consider it a prudent speculation. It is not every day that the ordinary investor is able to find such a potentially disruptive technology on sale at a reasonable price. We can?t all be private placement investors, but Lumenon has given many just such an opportunity in the open market place.
1) they have competition that's further along and with far more impressive backing.
2) impacted sales for a year is not a "blip." If that year goes well and Molex is happy, they can take all products for the following three years, and if the year doesn't go well, they are free and Lumenon is left looking for other partners.
3) they are "debt-free" because they continue to pawn their shares for funding. In effect, shareholders are asked to be their bankers --- both the shareholders who buy the secondary and the established holders who have to suffer dilution.
4) if Lumenon is giving the little guy a chance to get in on the ground level as they would with a private placement, then the price should be commensurate. Pre-revenue venture funding would most likely be at the 3 to 5 dollar level.
This is not just about good technology. It's about management's ability to bring products to market at a price that will add to shareholder value. So far they've made some huge blunders and even if they hit on all cylinders for the next 12 months they can't undo the damage they've done.
Pat |
