Hi Tom,
Re CATS: I became disenchanted with CATS about a year ago and switched my holdings to XICO at a time when XICO was trading at a lower price than CATS. That allowed me to exit CATS at a higher price than its current trading levels and to get a tremendous ride on XICO. Here is what I posted back in January:
Monday, January 22, 2001 5:49 PM ET
To: Dale Knipschield
From: Baird Soule
Knip,
Congratulations on your gains in CATS. I share your concerns about the company's R&D and their long-term future. They seem to have an Eastern European design team that may be working for peanuts, but the company has not been committing a large percentage of its revenues to R&D.
Around mid-December, I became concerned that CATS was largely riding the crest of a supply shortage in their markets that was likely to evaporate as the economy slowed. Their main advantage is the cheap price, a fair amount of cash, and perhaps an improved management team that seemed to be making smarter decisions. But without substantial R&D, the likelihood that they would be developing major next generation product is, IMO, small.
You might review some of the discussion on the Raging Bull threads discussing XICO and CATS in December. One of the posters, pmcw, who I've found to be very well-informed and chip-savvy, discussed the relationship between the two. Essentially, the difference is that XICO has looked bad while doing extensive R&D and reorganization, while CATS had done significant cost-cutting and increased their production capacity during a time of product shortages to enhance their ability to make hay while the sun is shining. But the last CATS conference call suggested that there are now meaningful concerns about the company's near term future. Economic softening will reduce revenues and margins -- even more if the company doesn't have a strong sales presence. And as the market tightens, their ability to differentiate their product or to come up with new and better products becomes more important.
Going forward, XICO's much higher R&D is turning out products that position it more advantageously for future sales. I ended up liquidating my CATS position and shifting it to XICO. Both are up significantly from their Dec lows, but I continue to believe XICO has a better long term prognosis. One other factor is that XICO has had significant insider buying while CATS has continued to show major insider selling.
Obviously, the main attraction of CATS is a value play, but I think their history looks brighter than their future. I would be inclined to consider it under $2, but would otherwise wait for more bad operating news to tarnish it more.
Regards,
Baird |
