Hi Joe,
You are quite correct to note that the NPIX/IBM "partnership" will start to bear fruit in FDDI shortly. Nevertheless, this portion of NPIX's business is *not* what will create substantive value for the company's shareholders. As I suggested in another of my recent posts,
the true values inherent in this company are three: 1) about $ 45 million or so in cash assets against no long-term debt, 2) the FDDI business, by my judgement worth about 1.5 times sales (which in 1997 will approximate $ 45 million), for a value of $ 65 - $ 70 million, and 3) the fast ethernet business, which we can only guess at. From the standpoint of our guess however, we know that Bay Networks recently announced its intention to acquire a small company with fast ethernet *prospects* for about $ 100 million. It should be noted that the acquisition was of a company without a product currently out but expecting to ship in the current quarter, so there were no sales yet but there were a dozen engineers that came with the acquisition. In short, this is a fairly *high* price to pay for the technology. What does this make NPIX's fast ethernet business worth? Darned if *I* know! But in comparison, it should be noted, that NPIX already has the technology shipping, it is gaining market share and should have total shipments in the $ 40 - $ 50 million range in *this* year, its product line has considerable breadth and functionality, and it surely is worth *more* than Bay's acquisition. So, when you add up all the package you get a very high price for NPIX, though how you would speculate on exactly what it is worth is beyond my capability.
The fast ethernet market is growing exponentially, and a 200% rate for the next two years wouldn't surprise me. A recent study by a large think tank suggested that the worldwide market would grow from approximately # 2 billion in 1996 to nearly $ 39 billion by the year 2000. Of course, such long term guesses are merely that....but, the direction of the growth is obvious, its just a question of the magnitude of the rate.
I hope that this is of some benefit to your understanding of this issue. There are a large number of firms that would benefit from acquiring NPIX, perhaps including IBM... However, IBM has shown limited interest in doing this to date, has had a relationship with the company for years, including a time when they considered dropping it as a vendor, and is not a likely acquiror in my view. That the company will probably be eventually acquired is not in question by me. The technology is too essential elsewhere, and the ultimate pricing is too reasonable to pass up (particularly by firms that have very high price securities of their own that they can issue for NPIX's equity!)
Good luck with your investing. |
