The cease and desist letter in isolation does not seem that implicating. It is possible that the statement by an analyst claiming S-CDMA will be included in the next Docsis standard could have incited it. Can anybody check on the dates for the statement by the analyst and the letter from Cablelabs?
Notes from Q4 CC on January 19, 2000:
Message 12608801
Q: What about getting major US customers? What about problems in US. . . COMS took over one contract. . .
A: US is in transition. Some are transitioning to DOCSIS now, some later. We sell to Cos for data and sell video to lots of operators. Still in CableVision with data. They're in transition to DOCSIS. We will announce when it's significant --- when we bring DOCSIS based on advanced physical layer we will have good opportunity to penetrate US customers. Some will deploy.. . .
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: Highlight current status on 1.1, timing?
A: 1.1 --- tremendous progress. We're providing system for testing and will have DOCSIS modems in July-August round.
Q: Clarify issue of DOCSIS and S-CDMA being accepted, time line, and how it's limiting US customer base.
A: Refer to CableLabs letter --- proto-type by mid-year and approved by end of year. Make no mistake this is advanced certification that includes S-CDMA. The US is in transition. Penetration is a function of how fast you have DOCSIS. Once we have 1.1, we have opportunity for accelerated penetration. Some cases need proprietary and will move to DOCSIS. . . .
The letter from CableLabs to Rakib is dated Feb. 2, 2000, and the final decision to use TDMA and not S-CDMA, and thus eliminate Terayon from the co-authoring process, was made around the second week of January. I don't have this documented but you could contact CableLabs to verify exact date.
What I do like about Terayon - they have been aggressively selling to a large number of customers. The selling practices and issuing warrants is fishy, but no customer will buy TERN products if they do not work and especially the headends. No Cable operator is going to risk committing to a headend because TERN is giving discounts on modems. However, it is possible that the warrant sweet deal could have inflated margins.That would be something to worry about.
I have a different understanding of "wide of array of customers." Their two largest represent 70% of sales, and their four largest, 95%. From the latest 10-K:
Four of the Company's customers, Shaw Communications, Inc., Rogers Cable Inc., United Pan-Europe Communications and Sumitomo Corporation, accounted for 40%, 30%, 14% and 11%, respectively, of total revenues for the year ended December 31, 1999. Three of the Company's customers, Shaw Communications, Inc., Cablevision Systems Corporation and Sumitomo Corporation accounted for 40%, 16% and 14%, respectively, of total revenues for the year ended December 31, 1998. No other customer accounted for more than 10% of revenues during these years.
Of the top four, three were granted inordinately large numbers of warrants. UPC's involvement has been rumored but nothing I can document.
Like all companies consolidating in a market with acquisitions, all the bad numbers will be hidden or written off in in-process R&D acquisition related costs, goodwill etc. A good example of that is LHSP. It is impossible to say how good TERN numbers are in terms of profitably. Just assume that they are worse than the company puts out. But that does not mean TERN will not grow or have more revenues. But that it may not be as profitable as a shareholder imagines. Obviously that will ultimately affect its valuation.
Wisely put. And if the Rakibs are half as wise, they'll be more forth-coming with analysts and shareholders. If they need to re-invent themselves they'll lay out their plans in a clear fashion and treat investors as intelligent adults and not mindless acolytes.
Regards,
Pat |
