Joe:
Several days ago, you said something that's resonated with me ever since: words to the effect that the market will reward COMS' new solid,consistent earnings growth once it perceives that it will be solid, consistent and growing.
Nothing earthshattering about this, I suppose; an investment truism. But in today's context, I think you've identified the primary reason your goal of $100 per share may be realized. We all know the market values consistent, predictable growth. KO is the penultimate example: a PE of 53 based on a meager annual growth of maybe 10%, but growth that has been consistent from before the last ice age. DELL, a simple "commodity" assembler of component parts, has a PE of around 63, and yes, they haven't had a warning in about 2 1/2 years. DuPont still has a PE of about 36 and it warned just this week that its future earnings are going to be flat; same with Hershey. And analysts are furiously revising downward the earnings estimates for the S&P500. SE Asia and all that.
In the last several weeks a great deal of information has been posted on this thread that - taken together - strongly supports the conclusion that COMS will be having strong, consistent earnings at a time when maybe few other companies will. This is fundamental analysis - something I've never tried before - but, hey, I'm just snythesizing from what you guys have posted before. Here goes:
1. At the last CC, Terry B said that they had "nailed" the channel inventory problem. They have implemented new accounting procedures that are more rigorous than any in the industry that will eliminate surprises. They took a sales hit in the last quarter to do it. The announced purpose of these changes was to make earnings in the future more CONSISTENT.
2. At the same CC Terry B said (as I recall) that NEW products developed just in the last one year represented 40% of total sales in the quarter. He said that the company has received more new patents in the last year than ever before in its history; more also than any of its competitors. This is evidence, folks, of a growing company, a company that is not going to have to worry about shrinking margins. <Some of you may quibble with the way the 40% figure was calculated. It probably does include new versions of old products, e.g., the new Palm Pilot vs the old or the CoreBuilder 9000 vs the 3000 whatever, but since the new versions carry higher margins (presumably) it's still impressive.>
3. NIC Cards: Analyst Donna Dubinsky says that the market for these cards is growing 20-25% per year that it is evolving into a "duopoly" shared between COMS and XIRC. (Remember the spring of 1997 when COMS tanked on fears that mighty Intel was invading this market only for people to discover that COMS, presumably because of its expertise, was gaining market share!) Dubinsky calls COMS "tremendously undervalued."
4. PALM PILOT: Walter Mossberg of the WSJ said last week that the Palm Pilot "has some new rival, but no competition." Someone said this is COMS' 'ace up their sleeve.' They've sold some 2 million and the market which they control roughly two thirds of (the other third being split between a dozen other makers using the Microsoft operating system. IBM makes its own version of the Pilot under license from COMS. (I don't know whether IBM's are counted in the above 2 mil or not.) Until now, most sales have been to individuals who use them as pocket planners etc. and have developed a cult-like loyalty to the Pilot. However, in the future, due to new capabilities of the Pilot(e.g., BlueTooth), sales are going to fueled by enterprises. Thousands of software engineers and companies, including the former inventor/developers of the Pilot are creating new software applications for it that will make it all but impossible for competitors to overtake Pilot's lead.
5. SWITCHES AND SYSTEM PRODUCTS: At the CC it was said that sales of these products increased 22% sequentially quarter to quarter. This area includes Gigabit Ethernet, CoreBuilder and SuperStack switch products. Anecdotally, we've heard COMS is selling all it can ship and can't keep up with demand. As Joe posted today, Lucent bought a company making Lanswitches because Lucent feels the market is growing 20% per year.
6. MODEMS: The rap is that this is a "commodity" product whatever that means; low margins, I guess. However, no one in a long time has dared to deny that COMS made the best modems around and that it is the market leader. GE makes refrigerators etc, commodities all, and it' OK with Jack Walsh as long as they're #1 or 2 in the market.
Alright, enough rambling; I hope I made some sense. |
