InFocus systems (INFS) Project Hunt Report
1. Overview
INFS makes lightweight, portable projectors. These have been coming down in price and getting smaller, making them attractive for greater portions of the market. INFS has agreed to merge with its largest independent competitor, Proxima. Together they should have 35% of the market, and a larger share of the ultra-portable portion of the market. This will give them more than twice the market share of the largest competitor, and thus status as King.
2. Revenues
With the purchase of its largest independent competitor, InFocus should record close to $900MM in revenues this year.
Infocus alone:
YEAR--Revs.----EPS
1996--$258.5MM---0.59
1997--$315.8MM--0.90
1998--$306.7MM--(0.02) (Loss)
1998--390.7MM--$1.11
For the December quarter, consensus was 32 cents. They recorded 47 cents. (Substantially beating estimates is a characteristic of tornadoes).
Important to me is that their P/E is 32.
3. Management
The company's web site includes management biographies. Harker, the ceo, has had a number of on-TV interviews, which are provided for replay on the site. My take is that they absolutely know what they're doing. They are making money, and winning in the "king" competition while taking steps to compete effectively in adjoining areas. They seem to have it together both tactically and strategically.
4. G/K Characteristics
A. Is there a discontinuous innovation?
Yes. Lighweight, portable computer-linked projectors are displacing other forms of presentation equipment, including flip charts, opaque projectors, transparent projectors and slide projectors. I can easily see computer-compliant, ultra-portable projectors becoming ubiquitous in offices and schools.
A1. Is there proprietary open architecture?
No, but . . . INFS has a number of patents which do give it some protection. I am proposing INFS as a King, not a Gorilla. They offer a product, not an enabling technology. The product includes a number of "high-tech" innovations, but is essentially designed to project images onto a screen. Additionally, there are indications that they will be able to translate some of their patents into valuable, income producing streams
B. Are there high barriers to entry and high switching costs?
No. The game is a strict comparison of product costs and features. The bte's are limited to the ability to develop cheap, bright lighting at a low cost. There are no switching costs.
C. Have value chains developed?
Yes, in the sense that INFS is able to provide a "whole product", fully compatible with laptops and presentation software.
D. Have they crossed the chasm?
Yes. They keep knocking down bowling pins as product prices continues to come down, allowing new "pins" to be entered.
E. Existence of Hypergrowth?
Yes, in a portion of its market. The ultra-portable segment, which they by far lead, is doubling each year. MSDW projects 40%-plus growth for the the broader market, for the foreseeable future, for the market and for INFS. I should note that the consensus 5-year estimate is lower, at 20+%. The company expects sales of $900MM for Y2000 (on a consolidated basis).
5. Competition
INFS just bought Proxima, the second-largest player in the sector. Potentially, a number of larger companies are serious competition, including NEC, Epson, Sharp and Sony. To date, INFS has absolutely held its own against all comers.
6. References
Home Page: store.infocus.com
MSDW research
Patents: 128.109.179.23
A link to Yahoo's/Marketguide's profile page: biz.yahoo.com
Zach's consensus estimates: biz.yahoo.com
7. Disclosure
I just bought an entry position in INFS.
8. Summary
Contrary to some on this board, I believe it IS possible to pay too much for a Gorilla or King. Valuation still should play a part in our decision to buy. For Gorilla/King investors interested in getting into companies at "reasonable" P/S and P/E ratios, INFS may fit the bill. It has a legitimate claim on Kingship in a fast growing market, with some interesting patents in several areas of applied optics, both in their "kingdom" and in related areas. The related area patents have the potential to generate additional substantial revenues. On the strength of the growth in their sector alone, the current price appears very reasonable. |
