Compression Labs, Inc (CLIX) - an Acquisition Target Message Board

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Technology Stocks : Compression Labs, Inc (CLIX) - an Acquisition Target

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To: leland L. Tsai who wrote (371)	5/18/1997 11:45:00 AM
From: E_K_S	of 375

Hi Eugene - Your observations are on track but I would add some other points too. First, the New Vtel must continue to expand and develop their "service" business for their top customers. In many ways, this activity will generate revenue as well as new 'future' equipment sales. It appears that the trend for several of these large customers is to "outsource" their corporate video conferancing requirements. If the new Vitel can offer a competitve service fee lease program, they can provide the required 'service and upgrade business' as a complete package. If you noticed several of the larger high tech companies are now generating more revenue from services rather than hardware sales. Second, neither company really manufactures but they configure the equipment based on OEM products delivered by suppliers. You are right that there are cost savings here but more importantly, design considerations and just in time inventory options, may allow a skilled set of service representatives to assemble and test the equipment on site. For large newtork centric video conference systems this is a plus as every configuration is different and onsite optimization and customer requirements must be integrated to fit new equipment designs. It saves time and dollars if this can be managed on the customer site rather than proto-typed at VTEL headquarters. Finally your statement..."1. The video conference market was projected to be growing at 40% per year. But the recent quarter reports from PCTL, Vtel and CLIX seem to suggest the growth rate is flat. What went wrong?" I noticed the same recent trend. I asked CLIX if they thought their sales shortfall was industry specific of company specific. They responded that it was company specific as several customers were on the fence regarding new product purchases UNTIL the completion of the merger. In fact, it may be a bit of both. PCTL is going through a new product transition and that accounts for their shortfall. Vtel actually had good growth in sales in several regions as did CLIX for sales in CHINA (grew by 30%). Therefore, I believe the industry in general was weak in some specific regions (a) South America and (b) certain regions of Europe. Also there were some hits on currency exchange rates which may now work the other way going forward. I do not think this is a trend but it bears keeping an eye on. The key for both of these companies to excell is to bring out their new products on time (end of Q3 or begining of Q4) and stay focused on servicing their current customers with innovative lease/service programs, annual maintenance contracts, flexiable upgrade options and consolidated 'outsourcing' programs. New customers will also find these programs exciting and cost effective and will want to be hooked up too. My target for the new Vtel is $18-$24 by 2nd Quarter 1998. Assuming they can establish annual earnings (1998 guess)per share of $0.80-$1.00 and maintain a growth rate in revenues of 20%-30%. That would put the CLIX shares (@0.41 exchange ratio) somewhere around $7-$9 or where they were priced 18 month's ago. EKS P.S. I think the merger will be approved as both companies and sharholders need this consolidation to survive and to be competitive for the future. If not CLIX's net asset value (IMO) is around $3.00-$4.00 and it would be based on selling their R&D technology to the highest bidder (about $60M-$90M).

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