From an article in Smart Money today:
QLogic represents something of an investment quandary:
The entire fibre channel movement, and along with it the
SCSI disk drive market, may soon be entering a phase of
growth similar to the networking business of Cisco Systems
and 3Com, with some people predicting a $20 billion
industry soon after the year 2000. On the other hand, those
dreams hang on the assumption that companies will take
products designed for backup and versioning of data and
use them to build sophisticated internal and wide-area data
networks. It's a hope, in other words, nothing more. For an
investor, it's a bet on the ultimate success of a technology,
not a company's fundamentals.
But that's exactly the kind of risk that drives R&D spending.
QLogic's transceiver products gain much of their value by
supporting the evolving data networking needs of fibre
channel. The demands of that universe are a black box at
this point. Peter Glaskowsky, a chip analyst with
MicroDesign Resources, points out that much of the
complexity of R&D spending in the chip field comes where
there is significant dependence upon software innovation. In
other words, a company that plans for very sophisticated
software systems to run on top of its chip products may be
surprised when in fact the market responds slowly. The
result is a product that consumes millions in capital
investment and ends up way ahead of customer demand.
The upside, says Glaskowsky, is that positive return for a
well-timed product innovation can be on the order of
hundreds of millions of dollars in sales, far higher than in
some tamer industries. |
