Sorry to be slow in responding,
But I have been really busy.
I have been thinking about your analysis over the last few days and I see several things about it that bother me. These issues are both general in nature and more Aware specific.
Let us assume that your figures are reasonably accurate. This possibly accurate long-term assessment doesn't justify a short position. A short position must always be a short-term proposition. Basically, IMHO the current price of Aware is determined by the likihood of a possible buyout (Lucent, ADI, ...). The major reason that you were fortunate enough to benefit from your Aware short position was fortunate timing (catching the normal cycle of 13 to 10) and then the general across-the-board decline in technology stocks (which hit hardest on small caps, catching the last 10 to 7.5).
On a more general note, it has been my experience that whenever I and others have been dead certain about something, we are almost always wrong. The situation with Amazon.com comes immediately to mind.
Lots of really bright people (Gary Korn) provided tremendous amounts of sound finanicial justification for shorting Amazon.com (when its market cap was approximately equal to that of Barnes & Noble). In the opposite direction, lots of people (Bill C.) could present strong technical arguments as to why DMT was overkill and CAP was destined to be implemented in the following ADSL contracts (GTE and various Bellcos). They presented endless amounts of trial results and the justification for the importance of trials. Jim Bender was right, "trials are bullsh*t" and today Westell is down from the high twenties and is trading at 6.
Things just are almost guaranteed never to go according to plan, one's best educated guess is still just a wild guess.
Aware is a tiny company which is now a major partner in cooperative non-competitive agreements with marketplace titans (Microsoft, Compaq, Lucent). I follow the real estate rule of buying small houses in expensive neighborhoods. Over the three years of your forecast, there will undoubtably be lots of nice lucative niches (niches too small to be pursued by the larger companies), which we aren't able to forecast today. For instance, who would have thought that Netscape would be marketing themselves today as a web portal. This is an unforeseen niche that they were able to participate in. Of course, nothing is guaranteed, but Aware is at least positioned to potentially benefit from them.
More Aware specifically,
1. I thought that the TI buyout of AMTX was outrageously high, but see no reason that a greater fool doesn't exist who would be willing to purchase Aware for a substantially higher amount. Aware's market capitalization is peanuts, to a Lucent or ADI. Especially in a market that is as potentially lucrative as ADSL. This sale might be done for reasons that aren't even apparent to outsiders.
2. Aware could follow up "ADSL-Lite" with "ADSL-Fast", which doubles both the upstream and downstream speeds and still allows for splitterless operation, and then finally "ADSL-Ultra" which once again doubles the speed. The modem companies were able to play this game endlessly, so the consumer market is already conditioned for it. Also the Internet backbone will always be the weak link, so an incremental enduser approach makes a lot of sense.
3. I don't believe that they really are only licensing and royalty revenue driven. I expect them to get back into hardware, when ADSL reaches a sufficient critical mass. They will find profitable hardware niches. |
