I think what's going on as far as the flat sales prediction is concerned is this: GALTF started out and made most of their money in controller chips for embedded RISC (MIPS) processors made by NEC, IDT, and others. This is like the Intel chipset business that Chips and Technology started with and were very successful with until Intel got into the act and shut them and almost everyone else out. This was a great niche business for GALTF with no competition and fast growing demand since embedded RISC processors are used in things like Cisco boxes and laser printers. Recently NEC has got into the business (a la Intel) and now because they sell both processors and controllers, they are taking major business away from GALTF.
GALTF management is not dumb - they saw this coming and are diversifying into other hot areas such as Ethernet switching chips and are looking for these to power their growth in later quarters. They have won cisco business which means a lot in terms of future growth.
However, the ethernet chip business is very competitative, with a whole slew of competitors that are mostly the small guys now, but the biz could become a nightmare if NEC (or Koreans, or tiawanese) get into the picture. NEC et al aren't making money in DRAM so they are looking at logic and systems level chips for growth, and they will be looking at ethernet switching no doubt.
OK. So what does this all mean for GALTF as an investment. Long term, I'd rather own CSCO because they win no matter what. They will benefit from competition at the chip level whereas trying to pick the winner in the chip market is very hard. GALTF says their growth will pick up in a couple of quarters, and it probably will given cisco's selection of their chips for their CURRENT GENERATION of switches. For the next product, who knows? If NEC or PMCS, or whoever presents csco with a better value proposition, they will buy from them.
When I review my tech investments over the last 3 years, one thing seems pretty clear - the co's with "unfair" advantages (e.g. proprietary standards or a lock on the market) like csco, msft, intc have done much better than the little guys who try and set the standard and fail. It is too early to tell if GALTF will become the premiere ethernet switching silicon co. But I don't see where they will have any unfair advantage compared to any other silicon vendor - there is nothing special enough about switch chips.
Enough. Happy investing. |
