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Technology Stocks : Adaptec (ADPT)

ADPT 19.04

+2.6%

1:57 PM EST

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To: jgercke who wrote (2335)	5/20/1998 12:46:00 PM
From: slob	Read Replies (1) of 5944

Larry and jgercke, With all due respect Market forces determine the value of a product and thereby the earnings that flow from these products. All that you can say is that if the Market is volatile than Earnings will follow. If you can't live with this reality than high tech is probably the wrong investment for you. I worked for many years in the IC development area and even with all this background knowledge I can't determine in advance what margins a given product will generate I don't even think I could guess within 30%. The problem is that semiconductors is a real "Free Market" there are no regulations stopping any two bit Taiwan design house from bring out products that compete directly with you. If this happens margins on these products will collapse. You also can't stop end product evolution from obsoleting your strangle hold on a given niche. With respect to a product portfolio, All that anyone can ever review is the strength of their control points for a given product within a given market. Strong control points is the enabler of high gross margin but in the end analysis competition determines the price and from there design efficiency and production cost determine in gross margin. In ADPT's case their hold over the SCSI market is being broken into by a number of small players at the same time as this market is under attack from alternative solutions. This indicates that their control points are very weak. Many of their new products 1394/FC are based on generic solutions so ADPT is changing from a company with unique solutions to one with generic solutions. All this speaks to a weakening of their ability to generate high gross margins resulting in a company that is more reactive to semiconductor market forces. Anyway, that my take on things. Slob

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