<<< Some possible explanations regarding the silence >>>
From Ed Bramson's letter to shareholders of 7/6/98:
I like to periodically re-read this letter to evaluate developments, or their lack thereof.
The problem:
" In the Annual Report letter ...[Ed Bramson]... wrote that many of the markets we are currently in either are not growing at present, as in the case of data acquisition, or are in transition as, for example, in the digital broadcast market. While the volume of sales is, at present, relatively low, the quality of our new orders is quite high.... [and].. To summarize; while there are encouraging signs for the longer term, Ampex's current product lines are unlikely to do well for the next few quarters, and so we will be managing costs carefully..."
The strategy (near term):
"Nevertheless, we feel that, more dramatic increases in revenue, will require us to be successful in our acquisition strategy....We are actively looking at a number of additional acquisitions and investments that may be finalized this year. Initially, our approach is to look for opportunities that bring strategic benefits to us even though they may face management or financial challenges....We hope to achieve our revenue growth chiefly from acquisitions, of which MicroNet is the first, and we are building our financial strength to take advantage of opportunities as they occur."
The strategy (long term):
"Looking to the future, the initial stage of our acquisition plan is to create a group of businesses in the digital image field that provide services as well as equipment. In particular, we are
considering the acquisition of a web hosting company since, although it is not possible today to
offer good quality video on the Internet, this could change as the availability of bandwidth
increases. This is an area that could offer opportunities for companies like Ampex that have
digital video know-how." ... [and] ...We have also added senior management capability through the appointment of an experienced new vice president of sales and marketing who is expected to become our chief operating officer early in the New Year. Increased management depth will allow us to pay attention to acquisitions without detracting from our existing activities.
Why we have not yet heard anything:
For the near term strategy:
"If Ampex's stock price rises or if acquisition prices in general come down, ...[Ed Bramson].. would expect to see us considering more aggressive transactions.
For the long term strategy:
"...[Ed Bramson]... will write to you again as new developments of major significance occur..."
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Commentary:
Lets's face it. The concerns of shareholders is to maximize cash flow in the near term focus, while the concerns of senior management is corporate survival then profits / the shareholder.
These two concerns are about different time frames.
The bandwidth problem is primarily one of marketing and regulations. This is what is the snag in the "digital broadcast industry transition". Until there is a consensus in this industry, any early mover will waste energy, resources and credibility. So, not only is Ampex stymied but so is Sony or any other "wanna-be". Hence the relaxed schedule for Sony's DST full product rollout (sometime in 2004 to be more exact).
The low share price and the lack of such opportunities may be the simple explanation of why there are no acquisition announcements for the near term strategy.
A medium term strategy in terms of SAN inspired high-end DST / MicroNet data servers may evolve. However, at present there may be as much hype as there is reality.
For the long term, there seems to be some movement in the direction of the "holding company" initiative, the job posting and the Internic web name reservations. However, if the progress is slow enough in this area, the above near term slips and the revenue increase targets can become more focused on the long term strategy - the holding company initiative.
In sum, not much revenue but a lot of quiet maneuvering. We may be in this period now. Since, as Gus pointed out. Ampex had relinquished it's consumer market presence and opted to become a supplier of technology and equipment, a quick move on Ampex's part would expose their strategy and make it so much easier for a brawny consumer market competitor like Sony, NEC, JVC Mitsu or others to buy the same equipment, even from Ampex, imitate, and do it for themselves.
Of course, these savvy consumer market competitors would be missing that critical "digital plus video" know how and would therefore be at a disadvantage. This brings me to the next point.
As the broadcasting industry evolves from analogue to digital (just beginning and will evolve over the next four years), I could see where it would be a matter of competitive advantage for a major broadcasting network to "commission" a name vendor as the supplier of the equipment and "know how" in producing Internet/air-wave delivery of TV, Net access, telephone, and cyber-game services. Lord knows that any one of them needs an antidote to a serious loss of viewers and soon loss of advertising revenues.
If the major's are slow to move, then it is feasible for a scrappy regional (or a Disney like network) to grab mind share and be the first out there. We have heard very alarmingly little from the networks regarding their response to these matters. There may be more substance to this silence.
In the meanwhile, about the best Ampex can do, is become part of a holding company venture of related alliances and partnerships and construct a heavily protected website where this technology can be carefully demonstrated. Early customers would be advertising, corporate internal broadcasting, when appropriate E-commerce providers, military and perhaps select government and educational applications.
While this service would be hardly be a high margin technology revenue producer, it could demonstrate and position Ampex as the premier provider of "digital plus video know how" equipment, solutions and perhaps, in some capacity, related consumer appliances (web TV / game boxes).
In conclusion, Ampex is a long term play. My estimate for a full realization of a potential revenue stream from the longer term strategy, if there is to be one, is another two to three years.
However, three caveats apply.
.....The first is that, near term, if Internut mania holds up, the birth of the now nascent "ampex.com" will likely create a share hype/spike that would rival the KM incident. Hence, any announcements about this prospect would have to be supported by carefully and clearly material fact
......Second, as this "transition" evolves, Ampex's perceived value should become more apparent and therefore impart a long term support to the stock valuation.
.....Third, and related, while you can count on the fact that Ed Bramson will not give up, if all else fails, this same perception would put a rising support valuation for sale of corporate assets.
Ed Perry
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