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.
However, without the genius of their founder Amati would never have existed. Same with Lumenon. I have not said that the good Drs. are management geniuses, just that they are good scientists. In fact, Dr. Najafi has made it quite clear that he is willing to relinquish the reins to a more qualified CEO.
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.
No, I did not forget how Lumenon came public, I alluded to that when I said they had little savvy in going public. However, unlike many firms that go the venture capital route, Lumenon's founders have managed to hold on to very substantial stock positions in their company. And, according to all that I've read, the company has no problem securing financing for their expansion. Perhaps they did when they cut the Molex deal, but no longer.
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.
What is your basis for claiming that Molex can sell the company? That is not true. Molex is not the controlling stockholder. Molex has the option to buy at fair market prices all of the 8, 16, and 32 channel chips that Lumenon produces. Molex does not have the right to take production of other channel count chips, such as 40 or 128 channel chips. If Molex were to take all of Lumenon's production of 500 chips a day at fair market value, just how would that hurt Lumenon's bottom line? It wouldn't. As for "taking over" manufacturing from Lumenon that is only possible if Lumenon cannot produce the chips in quantity and on time. That is not a given. In my view, Lumenon does control much of its destiny, perhaps not every single possible scenario, but enough to guaranty their seccess.
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.
What gain are you referring to? Molex has not sold any of its Lumenon shares. They have been a buyer of Lumenon's shares. Any profit is a paper profit at the moment. I don't understand how you feel that the warrants were given away to get business. To get Molex's business, yes, of course. That certainly was the intent of the financing. I see nothing wrong with that. Lumenon would have had to offer the same deal to any company that was funding Lumenon's initial start-up expenses, whether that would be Molex or Alcatel.
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.
You seem obsessed with the impact of the Molex agreement on Lumenon and keep citing the four-year period. First, the one-year contract calls for sales to Molex on a cost plus 25% margin basis. Those sales are only for a maximum of 400 chips a month. Yes, we all agree that that does limit the amount of income for one-year. However, after that Molex only has the option to take all of Lumenon's 8, 16, and 32 channel chips. It does not allow Molex to take all of Lumenon?s production since it can produce 4, 40, 64, or 128 channel DWDM chips, splitters, cross connects, filters, modulators, or any other product lines they may introduce. And in the Form 10 Lumenon specifically states:
The Company anticipates making sales of its products to customers other than Molex after the first year of production.
This does not appear to hinder Lumenon's ability to 1) generate sales from other optical products, or 2) hinder Lumenon?s ability to sell to other OEMs, or 3) receive full market prices for their chips after one year of sales to Molex.
With the new production factory coming online in late 2000 and the production of 500 chips a day by the end of the year, Lumenon will be half-way through the one-year Molex agreement. At that point it should be announcing OEM agreements with other companies. I believe that any Lumenon stockholder will be well rewarded over the next three years. You obviously disagree. So be it. |
