JRH : elon...Does this mean that in order to develop competing products, other companies using LonTalk will need to license (and pay royalties on) ELON's tech that uses LonTalk? In other words, the protocol itself is free and open, but the ability to use that protocol must be paid for?
Yes, I believe so.
Note that currently all implementations, to the best of my knowledge, or at the least, the overwhelming majority are based on the neuron chip. I believe this excerpt from Janet?s report may help clarify the issue.
Use of the Neuron chip guarantees an appropriate hardware execution environment for the protocol ....The protocol is thus implemented with a mixture of hardware and firmware (the instructional set of the Neuron processors was designed specifically to execute the LonTalk protocol, allowing the firmware portion to occupy a mere 8K bytes of on-chip ROM). My understanding is that it is this firmware, Echelon?s embedded, on chip software, that is patent protected, and to say it colloquially, is what is required to turn LonTalk on.
Current situation wrt Royalties:
Unfortunately Elon does not beak down revenues according to hardware v software v royalties, nor do they provide a breakdown per product category, so it?s difficult to ascertain the contribution of each part of the enterprise to the top line. fwiw they have stated that at this point in time, this info would be more useful to competitors than shareholders.
Since all implementations are currently based on the neuron, I assume that royalties from Licensed non Echelon Lonworks products (hardware) are non existent, but I could be wrong about this. As per the 10-K, Echelon includes Licenses for network services software products under the heading of product revenues, possibly because, as they state Revenues from software licensing arrangements have not been significant to date. I suspect that this is one area where we should see significant growth going forward.
Bear with me for a second. The neuron chip is optimized for Control Networks ( again from Janets report: The Neuron is actually 3 8-bit inline processors in one. Two are optimized for executing the protocol, leaving the third for the node's application. This ensures that the complexity of the application does not negatively impact network responsiveness and vice versa.) According to the company, due to demand, the protocol can now be ported to more powerful chips, I?d assume that this allows more complex applications. I would imagine that here ?the protocol? is understood to includes Echelon?s firmware. The reason I think for this demand surfacing, is because, again from Janet...two enabling technologies have converged, the Internet and LonWorks.
This is where I believe growth from system software royalties will come in. Echelon?s software offerings, collectively known as LonWorks Network Services (LNS) seamlessly ties these technologies together. LNS is an Internet ready, out of box solution, with no need for custom engineering where it is possible to install, configure, monitor and control a system all on LNS.( also from hunt report: Message 13188125
My understanding is that software royalties, are based on the #of nodes in any network. As user management or control of the network becomes internet based I believe that Echelon anticipates increasing LNS sales / software royalties since they are focused on establishing LNS as the de facto std for control network operating systems. Indeed this objective was confirmed to me, in a casual phone conversation a representative from management. The recent announcement out of Germany, whereby the world?s largest LonUser group selected and ratified LNS as the std operating system to be used for LonWorks Networks in Germany, is a move in this direction and evidence of progress on this front. Many of Echelon?s recent announcements have involved projects whereby the use of the internet was a key factor. I can only assume that here, LNS would be employed also.
There has always been a significant amount of consternation by shareholders that Echelon has repeatedly said that it does not earn Royalties for the neuron chip, and that the node ID fee for each chip ($0.15) is not material to their income. I think that the reasons for this are becoming apparent. Assuming that users buy into the benefits of Echelon?s technology, that Lonworks networks proliferate and are controlled via the internet, I see a company selling hardware in droves, and collecting serious revenue from software sales and royalties. It is the chip makers who will make the direct revenue from the neuron. A while back I was told by management that the company intends making (paraphrase) ? a whole lot more than $0.15 a node?. If what I have outlined is correct, I can see how this would be true.
When I initially came across this company I saw what I perceived as a compelling opportunity to buy into a potential ?giant? (never knew about gorillas then) at ridiculous prices. I knew it would take time and I have plenty of it. Encouraging signs abound, but really, this game has just started, and anyone holding/ buying this equity has to understand that this is a very high risk investment at this stage.
IMO Echelon has a brilliantly conceived business plan, initially drawn up yrs before any of us had email, let alone computers in our homes. My confidence wrt management is not just because they boast impressive cv?s. Imo they have clearly demonstrated an ability to visualize the future, build a business plan that incorporates it, and execute on their their vision to benefit from it. In this respect alone, the manual and Moore's other books, have been phenomenally valuable in enabling me to evaluate the company within a clear cut framework. Echelon is now within two quarters or so of profitability, and imo what will be revealed in due course is that the amount of money they will be making will be commensurate with the size of the obstacles they have overcome and with the potential contained in heretofore unthought of applications.
I know that?s a lot more than you asked for and I apologize if you?re sick of my unabashedly bullish raves. I sense a lot of folks here who feel they?ve been hurt badly by this stock and I sincerely hope that if any of them bother to read my outpourings that, (if I am correct as to my understanding), they may be led to a clearer picture of what the company is about, and why I, for one, am so excited about this opportunity.
Elon is a viciously volatile issue and if I have anything to say about shiny pebbles it is that while a select few may turn into gold, or gorillas, I humbly submit that the right time to buy them is not when they are shining their brightest, but rather when they have sunk. We can never know with absolute certainty what the future holds, and I don?t mean to reinvigorate the whole ?market timing? debate by saying this, but I sincerely believe that an alert and awake patience in the market, ameliorates risk. Over and over I have witnessed a shiny pebble coming down to pick me up, you may not get em all, but you?ll never have em all and, no-one needs em all.
David.
Caution: I have a lot ?I think?, ?I believe?, ?I suspect? etc in many of my posts. I am telling Echelon?s story as I see it and want to be clear that this is JMHO.
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