Reposting this due to serious math error in royalties -- that is 600k per month, not $6 mil (details) have added fourth quarter board sales estimate of between $4-$10 million and more numbers elsewhere.
Thesis "Why ICOM will be $10 by end of '99" (This is long but worth it.) First and foremost, if you haven't educated yourself on Texas Instrument's new C6000 line of digital signal processors, you won't know what the heck I've discovered. Moreover, you won't know what hit you when ICOM doubles several times during 1999. I can already sense the skepticism and sneers. I'm telling you, if you take a fresh unemotional look, you'll see it bigger-than-Dallas, or I guess Richardson.
I've been building a DSP portfolio, and ICOM is a classic example of an over-promising business division shadowing a quiet product line set which is going to blow people away. The more I learn about it, it just keeps getting better. I have rarely seen situations with this much writing on the wall for success. Enough of my diatribe...listen and think.
First, cleanse your mind of any history with SonetLynx, LANscape, or anything to do with Intelect's communication equipment division, Intelect Network Technologies. DNA Enterprises, Intelect Network's much larger sister, appears to have completed what can only be described as miraculous coat-tail takeover of the applications business surrounding Texas Instruments new C6000. As I said earlier, if you don't know what that is, then you probably don't know why TXN has doubled in the last two months. In short, TXN are the experts in Digital Signal Processors (DSP) with a 48% global market share. A DSP is simply a chip designed solely for the purpose of processing digital signals. They are used predominately in communications, visual processing etc, anywhere things are digital (not your PC, it doesn't compete against Intel) TXN has invented a new DSP to be available in volume in the first half of 1999 which operates at about 10x the speed of current chips. In the second half, they roll out the second version which operates at 10x-15x the speed of the first one -- meaning, that in about nine months, TXN will be producing, in volume, a DSP chip that operates at 150x the speed of current technology. TXN management has stated that "this will do for them what Pentium did for Intel", which looks to be true. Last month, TXN said in a conference call that the C6000 was being accepted into the marketplace a rate greater than any TXN product in history. Current production of the high speed chip is around 500 per month, TXN has stated that by Dec '99 they will be at 100,000 per month.
Bully for TXN, what about ICOM??
Over the last two years, DNA Enterprises has quietly been assimilating one of the greatest DSP engineering teams on the planet (about 1/2 of their 120 senior engineering staff are DSP experts). As a result, DNA's engineering services were and still are under contract to assist TXN in designing their C6000 line. DNA is even under contract to train TXN's DSP engineers. The end result is that they have become the world's most knowledgeable group on the C6000 with about a 9 month lead in building applications around it. I'm not saying DNA is the only DSP software and hardware design house in the market, but pushing information at speeds in excees of 8 billion information processes per second can only be done by the top 1%.
Here's where DNA makes money.
1) they have designed top-end boards which are private labeled through an ALREADY ESTABLISHED distribution chain (Pentek and several others). Customers order the boards through Pentek, etc, and DNA ships Pentek the boards and gets operating margins in excess of 50%. DNA announced $1 million in board sales for the fourth quarter, and the chip has only just started to get noticed. Assuming no market share gain, this number would be between $4-$10 million in 4Q99.
2) they have signed a STRATEGIC ALLIANCE with SCI Systems (SCI), one of the world's largest contract manufacturers of electronics ($6 billion revenues annually). DNA gives SCI the designs to bid on large OEM contracts, when SCI wins and moves into volume production, DNA gets around a 15%-20% royalty fee. They have already won a contract with Raytheon to provide the next generation of wireless communications for the entire US military ($40 million over 8 yrs) and are being considered for two more contracts of equal or greater size. These three contracts could bring in $1 million per quarter in cash by year-end 1999.
3) DNA has developed an operating system for the C6000 (this does for the C6000 what Windows does for your PC). Traditionally, there has never been a standard for DSPs like the Pentium is for PCs. The C6000 is the first DSP line to offer that standard, i.e. the chips can be used for several purposes and future versions will be compatible with previous versions. This, combined with the fact that the speed makes the C6000 an absolute b*tch to develop applications from scratch, creates a paradigm shift for demand in DSP operating systems -- and DNA has developed a beauty (they had to in order to meet all those development deadlines from TXN). Compare DNA's operating system, the ASP6x, to Spectrum Signal Processing's, SPOX; the SPOX consumes a significant amount of processing power from the DSP (kind of like Windows NT) and costs about $20,000 for a development liscense. DNA's ASP6x consumes very little processing power, which maximizes the C6000's performance, and costs $25 per chip (yes that's $25, about midway between where Java and Windows first came out at). Picture this...when TXN is producing 100,000 chips per month in 12 months, if just 25% adopt DNA's ASP6x, ICOM gets $620k per month CASH. What's the likelyhood of that?? Over 300 third party developers for TXN's C6000 have requested and received the ASP6x. When their products begin rolling out in about three months we will know what they are doing with it. If you go to TXN's booth at a trade show and ask them for an operating system for the C6000, they hand you the ASP6x. If you go to TXN's website and look for an operating system for the C6000, you will find yourself at a request form at DNA's website (DNA is the first and only company to be hotlinked to TXN's website without the user having to search under the "third-party vendor" section).
The moral, Don't throw out the baby with the bath water! Mark my words, the DSP business will bring ICOM to profitability during 1999 EVEN WITHOUT any assistance from the other product lines. It's Thermodyne time!!
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