Stan, I disagree with you that this is the beginning of the end for Zitel/Matridigm...here's why:
The case for Zitel..this is going to be long - I have a lot to say.There are some points that I feel warrant mention regarding the subject
of an investment in Zitel/Matridigm, which for convenience I'll refer to as ZM. I don't believe that some of the points that I want to make have been posted to this point.
My opinions are derived from The Stewart Report, the Emerald Research Report, the Zitel conference call, the Matridigm patent application, my previous experience as a Vice President of the IS department of a 5,000 employee firm from 1989 to 1993, which currently is facing the Y2k problem, the Nov 15th IDC Research report and last but far from least, all of the postings on this and other threads discussing Zitel and other Y2k stocks.
The premise of the following is that I believe that Matridigm has a red -hot technology. The technical, commercial and marketing brains behind ZM are more than impressive. Anyone who doubts the technology should go to the www.Matridigmusa.com website and print out the Technologies and Services document, then find a knowledgeable Y2k individual to explain it. This is what Kevin Schick called "the hottest technology I've ever seen".
Ignoring the Y2k problem, this technology is impressive for its outsourcing potential for legacy code maintenance; the original incentive for Franklin Chiang's research. Outsourcing the development and maintenance of IS systems is a huge and growing industry. Software maintenance is a problem for all IS departments, since the best programmers prefer to author their own code and not end up having to maintain and debug the (always inferior) code done by others. The conundrum is that effective maintenance requires the best programmers.
Matridigm's technology is built on automated software code conversion `factories'. They can be scaled to match any demand. As David Stewart reported, that's important. Production of converted code, like industry demand itself, will ramp to higher and higher levels as the mandatory deadline approaches. I am also convinced, as Matridigm claims, that they have the most cost effective solution as well as being a solution that by its automated nature is a pleasant alternative to the drudgery and high cost of software-assisted manual conversion.
Unlike the ZM solution, `body shops', i.e. Y2k consulting firms and IS departments that want to attack the conversion projects themselves, are labor reliant for growth. The dilemma that they will face is not only that as the clock approaches Jan 1, 2000, the alarmed need for date change assistance compresses, but that programmers needed for the work will be harder to find.
Firstly, I don't believe that there could be a less challenging and more boring job for a programmer than repetitively fixing date code. Secondly, what programmer wants to get involved in something which will add nothing to his/her CV, and which will come to a dead stop in about three years. Someone is going to have to throw big $ at programmers to prevent them from jumping ship before D-Day. Thirdly, when one looks at the size of the problem and the potential deployment of the IS resources onto this mandatory but non-value added project, and considers that most IS shops would then have to partly or completely shut down their normal IS plans which heretofore were focused on moving their firms forward, you can imagine how thrilled the CEO's and core business executives (as well as the IS VPs) will be to have to fork out large chunks of their companies' cash flow to fund this asinine effort. I find the recent IDC research report faulty when it somewhat naively infers that most companies have their Y2k conversion plans in place and things are less serious than reported elsewhere previously.
I don't think there would be an IS manager worth his salt who wouldn't jump at the chance of being able to ship their `dirty laundry' to Matridigm, and have it returned within a week or two, all squeaky clean. And the real beauty of Matridigm's technology, is that converted code can co-exist with non-converted code. This is paramount. It means that huge applications can be sent out and converted piecemeal. The IS department doesn't have to miss a step. Ongoing development and maintenance can continue uninterrupted. Firms that opt for a Matridigm solution can keep on pursuing their `forward year plans'. Those who opt a do it yourself approach would have to justify a huge millennium problem budget lasting for many months if not years - an unpleasant job and a damned hard sell to boot.Some posts have wondered if maybe a Microsoft, EDS or IBM or some such will come up with a competitive technology. I don't believe this problem is of even passing interest to firms like Microsoft. This problem is of interest to EDS and IBM firms but more for the consulting services work.
Also, the ZM solution appears to solve some really sensitive problems - like security critical code for agencies like NORAD, the Pentagon, the CIA and so on. The mobile conversion factory that is the domain of Zitel is perfect. And the exposure that ZM both get for their technology and products for when after the Y2k issue is put to bed cannot be anything but substantially beneficial for their future businesses.
I'm sure the Zitel bears will jump all over this. Let's hope their arguments are more substantial than the gibberish that some of the TAs have posted. However, in my opinion, the ZM play is one sweet deal for the longs who can hang in there through this rocky ride up.
Lastly, the issue of trying to figure out how much of the possible three-digit $billion market that Zitel can capture may be the wrong way. I think that Emerald Research took the right approach in figuring out the earnings impact of a single conversion factory running from early 1997 through the end of 1999. Like Emerald, I believe that Matridigm will be backlogged for several quarters by the end Q1 1997.
One factory could process 18 billion lines of code over the roughly three years and would generate roughly $13 per share per year in after tax earnings. Five to ten factories could be operational around the world by the middle of next year. That calculation did not take into account any per share earnings generated from Zitel only business, which should tack on a few dollars to that figure. The more experienced investors on this thread should be able to figure a conservative floor price for Zitel based on that.
The signal event that will place the proper value on Zitel shares will be the Matridigm IPO. This will reveal their strategy, market and share value potential for post Y2k existence.
This is my first post on this thread. |
