The life-span of these products, as you well understand, is shortened by the attraction to very high initial gross margins as it summons countless imitators into the market. Thus, high-margins are quickly replaced by lower margins, as all make a drive for market share. The quick product life-cycles are a constant source of concern to any investor, professional or otherwise, as the stock price must discount an uncertain revenue stream as the product ages.
So, many of these companies ride quite dramatic roller-coaster rides as the mature into something more predictable, or not.
I followed the industry closely between 1980-1990, but am less enamored by it as time proceeds.
A related story may shed some light on how I understand markets: Many afforded Radio Corporation of America, and other broadcasters, in the 20's extraordinary multiples; and again, Sylvania, Admiral, and other T.V. box makers, high multiples in the late fifties and sixties; and, once again, mainframe makers, in the late sixties, and now, p.c. makers, and internet makers.
All of these advances produced enormous advantage over existing technology, but all appear quite commonplace and mundane shortly after. The barrier to entry in these businesses is remote, as the new advance is so widely embraced by everybody; indeed, all quickly comprehend the advantage to their personal life or business, that it quickly becomes the standard way of life very soon.
Well, enough nonsense.
I wish you the best of luck in your investments.
T.V.H. |
