You make a good point by asking such a factious question.
factious? you mean facetious, right? And if so, I am not being facetious. If EFNT can only grab 30% of the gross margin on their product, then one of their component suppliers is getting the lion's share of the margins (IMO).
As we know it doesn't work that way really, one can not take a profit that hasn't been realized. I'm talking margins. High margins in tech mean the company owns something that others want a lot. Obviously EFNT's customers want DSL equipment a lot. If EFNT cant charge a lot for it, it means some EFNT supplier owns the valuable stuff, and EFNT is paying the supplier through the nose (that's why EFNT's costs of goods are so high).
The market is a competitive one, chipsets are in big demand...thus driving up their cost, so are most other services and materials required to produce the products EFNT sells. With those conditions the market presents the same obstacle to everyone competing in it equaly.
Well, there aren't THAT many CPE equipment competitors. What, four major competitors? And if there were any way to make a BETTER CPE equipment box, that provider would grab share. On the other hand, if there is not a way to make a better CPE equipment box, then we don't want to be in this space (right?) because it is just a commodity space (right?).
We don't want to own a company that competes primarily on price, right? That's B-School 1.
However, they (EFNT) are not being robbed, but MAYBE they are remaining competitive just enough to CONTINUE increasing market share by keeping prices low. That I'm not sure of, but it appears they've been doing just that...remaining very
competitive while gaining market share. If so they will grab a portion of the market as they force others out. Myself...I think we're close to seeing the margins tilt in EFNT's favor....but, am not sure it will be shown in this or the next quarter. This QTR. looks good to me...I must say.
I'd say with economies of scale, EFNT's gross margins MUST improve with each increase in revenues. Otherwise it is a crummy business to be in. For me, if they increase revenues, hold expenses flat, but only hold gross margins flat, and are able to show a profit on expense controls, this is a lousy stock to be in. That's my humble opinion, because EFNT acts like a tech stock, and good tech companies have both high growth and HUGE margins (the emphasis is mine, not put in by others).
Elroy (totally loves PacBell DSL) of Arabia |
