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Technology Stocks : Oak Technology (OAKT)

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To: Rishi Gupta who wrote (4128)	9/22/1998 11:21:00 AM
From: slob	Read Replies (2) of 4335

Rishi, I've just started looking at Oakt and all I see are danger signs! 1) Basically their only worthwhile product is a CR-ROM controller and they readily admit that they have lost ALL the Taiwan 32X business due to price competition. Good they are looking at protection from Patents but the truth is that the product is a commodity and they can't compete. 2) This whole Pixel magic business is such a crock (JMO). It seems to me that this is a company started in 1991 that now has three image compression chips available (only one seems to be selling). If I understand it correctly this chip halves the amount of RAM needed to store FAX images. From what I can see it is only of value in Multi Function Faxes and even there only replaces a low cost DSP. Seems to me that based on the RAM savings this chip is worth $3.00 and falling quickly. Now this business is very different from the rest of Oakt's business so I'm inclined to ask, Why not get rid of it? Instead of this they buy XLI to get them added functions in this nothing market. Can anyone help me understand this concept? 3) CD R/W technology. It seems to me that these are only useful for large storage systems. However, when a Writable CD costs only $1.00 why bother rewriting it? Naturally Oakt sees things differently they just paid $10M for Viewpoint. If I treat this as R&D than I'll be looking for over $100M in new business. Even according to their own numbers this market only reaches 6M units before DVD RW technology takes over. 4) As if they didn't have enough going on they go out and buy Odeum. Seems like they got a good buy, however again WHY. 5) Now they also seem to have decided to focus their consumer electronics resources by starting into Digital Broadcast television 6) Oh I forgot to mention that they have this ongoing DVD effort are tryiing to support VCD and hope to be a hit in Cable/Satellite products. From my calculation that's one product per Engineer. For my part, as a potential investor, I want to see OAKT achieve $50M sales per quarter. To get this they only need ONE hot product. Almost any of the markets that they are in could easily deliver this one hot product they don't need to be spread so thin. Step back and look at why OAKT was successful, what you'll find is a company that owned over 50% of the CD-ROM controller market. This is a strategy that is called Micro-dominant. Oakt owned this market therefore they were able to drive the development and keep the ball away from the competition. These two factors combined to enable them to demand FAT margins and generate great earnings. Now look at their current strategy and you'll see a company that is complaining about commodity margins in the CD-ROM market however has development plans that will result in OAKT getting twice as much commodity business as they currently have. Where is the logic in doing this? IMHO the Management needs to be shown the door, they clearly have NO short term OR long term strategy. Hello Management is anyone awake? Slob

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