Bruce,
My argument is that JDSU has innovative power that can say, stir, rather than, say, shake its value chain. There are degrees of control that we, as investors, might come to understand, rather than settling for categorizing a company as either a gorilla or a king.
JDSU's control is expressed through many competitive advantages that follow from its business strategy as it achieves critical mass in scientists/engineers and in manufacturing generally, and as it specifically integrates its broad product line into modules of increasing complexity.
The power-increasing movement is from components toward systems on a chip, systems that are migrating toward embodiement in silica, systems at the beginning of a massive learning curve similar to that underlying Moore's law.
This movement is toward offering a total solution, with all the competitive advantage that end-to-end solutions bring.
Moreover, at some point, these modules become complex enough to have an architecture that could become proprietary by patent; some may be already proprietary as process know-how now. Knowledge, itself, creates power that varies in degree.
A lock-in can be achieved by one giant step or through a set of baby-steps. Either in-house research or acquisition of new technology can further their lock-in from various forms of proprietary knowledge.
Now, JDSU is the principal player, larger than all of its competitors combined, and growing at least twice as fast . If we understood the technology better, were able to listen to it, we might hear it whisper JDSU's increasing degrees of control that guarantee its increasing returns as lawlike. Because the switching costs scale up with the complexity of the modules and no competitors can match their growing level of modularity, JDSU is already a stock to hold more tightly than lightly.
In addition, it is catching the technology wave of DWDM that enables the infrastructure of the Internet. A wave that is created by Metcalf's law, a law that is arguably both faster in its effects and has further to go down its learning curve. The Internet is the mother of hypergrowth, what Moore calls the 100X change. This change of change is vastly revolutionary, a technology wave of tsunami height and breadth. Picture this wave as an area graph of GAP and CAP.
When you have a new, larger, King, a company that developed from combining the manufacturing capacity and know-how, the scientists and engineers of four or five (OCLI) component manufacturers--all within a year and a half--and that in doing so integrates the very same four companies that Weingarten and Johnson sited as the four compelling plays last year, you have new synergies that can only increase the power of JDSU within its value chain. Perhaps, worthy of being called a Kingilla.
The growing, unmet demand forming the Tornado of DWDM hypergrowth has already ensured a standardization on this modular process at least; it may also insure an increasing degree of standardization on JDSU's specific modules.
I hope this helps clarify my argument.
Don |
