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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: RDM who wrote (60813)	6/7/1999 2:38:00 PM
From: A. A. LaFountain III	Read Replies (1) \| Respond to of 1572102

RDM: re "Have you fully considered the impact of telephony..." Having been an analyst for over 20 years, my first reaction is that to claim full consideration is like stating something will NEVER happen! But I have partially considered this as a result of TI's announced acquisition of Telogy last week. Market research firms are placing 2002 IP telephony equipment sales in the range of $3-4 billion. Assume that gross margins are 50% (makes the arithmetic easy) and you end up with equipment costs of $1.5-2 billion 3 years from now. Assume that software accounts for 15% of costs (and it had better be at least that, or the Telogy move doesn't look too swift). There's other stuff, like power supplies, PCBs, passives and E-M, connectors, etc. My guess is that semis represent 20-25% of costs. That gives a semi TAM in 2002 of $300-400 million. Going forward from there, I would use a 50% growth rate that would decline over a couple of years to 20-25%. If these numbers are anywhere near right, then IP telephony semiconductor usage is an interesting growth application, but not an industry maker. It's important to keep in mind that a $140 billion w/wide semiconductor market will have several areas in decline, so to grow at 16% or so, we need a whole lot of new growth areas. This should be one of them. Unfortunately, unlike cell phones to date, IP telephony is probably going to have a pretty high substitution effect (that is, cell phones have generally been additive, with only a few people cutting the tether to a land line; at the margin IP phones are likely to be used to replace equipment that would also have used ICs). If you go to the Telogy site, it has some good links for additional information (Quality of Service - what a concept!). - Tad LaFountain P.S. Point of reference - TI paid about $435 million in stock for Telogy with $14 million in revenues in 1998, so I'm not kidding when I said that this market needs to grow big and fast.