J Fieb, your question on timing of buying more ANCR motivated me to review the current situation in light of what happened 3 years ago:
ANCR history and market history/seasonality suggests that another "buying opportunity" might present itself and someone who is hellbent on trying to pick the absolute bottom/minimize downside risk would probably wait on the sidelines waiting for volume to dry up, bad news to present itself in the form of BRCD OEM wins ( shaking out weak hands )and potential summer market correction.
HOWEVER,IMHO,there is also the likelihood of more good news for Ancor in the not-too-distant future.( more on this later )
What about the observation that in 1996, Ancor fell precipitously from an intraday high of $41 in late May to $8-9 in July?? Well, let's consider what was really going on in the market in the summer of 96 ( I remember it VERY vividly )and how it differs from 1999:
1) ANCR huge run-up in 1996 to $41 was fuelled by the $30 million SQNT announcement,its Motley Fool/cult status ( shared by other high flyers like IOM, AMTX,etc..)and culminated with the CNBC famous Squawk Box Interview. The size of the run-up was increased by the big short squeeze coupled with a number of momentum funds staking positions in ANCR ( I heard Louis Navellier, Nicholas Applegate owned ANCR back in 1996 )
2) Kinnard killed the stock momentum when Clint Morrison came out the same day of the Squawk Box interview with a downgrade from BUY to ACCUMULATE, citing valuation.
3)Insider sales were reported soon after the Squawk Box interview, eg Steve O Hara sold 10K of stock , Cal Nelson approx 4K shares at around $25 and Lee Lewis sold some ( 1-2K shares? )..I'm going from memory so my numbers may be off a bit.In effect,at that time, short of further news, that Insider selling established a psychological price cap on the stock.
4) The techs took a beating in July 1996 as retail investors soured on their story stocks and suffered margin calls,etc...( eg AMTX,Iomega, Presstek ).ALL Story stocks were taken out back and shot.ANCR was no exception.Elaine Garzerelli issued an ominous fax and held an institutional conference call that summer telling all clients to "sell all stocks"..the stock market equivalent of yelling "fire" in a crowded movie theatre. Such FUD the Summer of '96..I remember it well..what a great buying opportunity...LOL...Elaine, Jimmy Rodgers and Billie Fleck never regained any serious credibility ever since..
5) A group of Ancor's original investors as well as Kinnard sold a large amount of previously unregistered stock in June/July/Aug 1996. During that time, since Kinnard was also selling its shares ( warrants earned from underwriting Ancor IPO in 1994 ), it legally had to remove itself from both coverage and making a market in ANCR during its selling window.This additional stock fed into the market put even more selling pressure on ANCR, culminating in a bottom of $8-9, before the stock stabilized in the $11-13 range and made another short-lived run to $21 in Sept 1996.
6) Reg S "investors" from Europe exercized their rights to convert their Reg S preferred shares to Common shares and take profits...More selling pressure.IBM took profits and trimmed their ANCR holdings in 1996 ( not sure which months )..even more selling pressure.
7 ) Reality hit home on fledgling technologies like Fibre Channel and ADSL. Both were not ready for prime time in 1996 and appeared to be a long ways from reality. Investors expected to see more big players make significant announcements of deployment in both Fibre Channel ( eg SUN )and ADSL ( RBOCs ). Neither happened and big momentum players like Navellier/Applegate took a hike.
How is 1999 any different or the same for the Industry/Market?
1) Risk of summer slowdown in 1999 is comparable to 1996 but most Wall St pundits are forecasting the probable correction to be yet another buying opportunity as opposed to a Bear market...Time will tell.
2) ADSL is finally being deployed (mainly because the threat of cable lit a fire under RBOCs )as is Fibre Channel. Fibre Channel never found a market for LANs due to marketing power behind Gigabit Ethernet/installed base of Ethernet but reinvented itself as an enabling STORAGE/Storage Area Network technology..A major reason for the explosive growth in Storage is the INTERNUT as well as increasing use of graphics in computing.EVERYONE wants a DATABASE and they need a way to back up data of all kinds and Store it/save it somewhere. E-commerce = Storage.They want to file/store all the names/credit card numbers of who's buying all those Tommy/Pamela Lee porno tapes sold on the Internet..I hear "iceberg"'s personal data passed thru Hustler's Sun server thru a MKII switch in a nanosecond and stored onto a StorEdge array the other day <g>.
3) There is actual PROOF in 1999 that Fibre Channel & SAN adoption /growth is now ramping up as proven by the actual revenues reported by FC companies/divisions, eg QLGC, EMLX, BRCD, EMC,etc..Virtually all the mainstream technology consultants/analysts ( Dataquest, IDC,etc) are forecasting explosive SAN market growth. As a result of the Fibre Channel revenue ramp-ups reported by public companies, WALL ST has rewarded Fibre Channel /SAN companies with high stock prices and institutional demand for stock offerings has outstripped supply. EVIDENCE: Wall St response to EMLX secondary and BRCD IPO. Gadzoox ( ZOOX ) is the latest FC company to file to go public and their revenue ramp has been impressive... WALL ST IS HOT FOR FC/SANS.This is a FACT, not hyperbole. The evidence is clear for all to see.
4) The REALLY BIG players are watching from the sidelines and waiting to take the plunge..Intel just put some bucks into Crossroads to help them productize their new FC router technology.. 3 Com put pocketchange money into Gadzoox but short term financial issues forced them to pull out of FC. Big mistake for them...The Big Kahuna is just chomping at the bit to take the plunge..
5) Sector moves appear to be THE most powerful kinds of break-outs, eg Internuts ( eg portals, e-commerce, ISPs )but they are not limited to "pure" internet/website/software/e-tailing plays...ADSL and Fibre Channel are hardware plays benefitting from the Data/Internet explosion:
ADSL sector evidence is not only the recent wave of ADSL IPOs ( TUTS , CMTN )but even "old" stocks like Aware ( AWRE ) , AWRE was trading in mid-teens for most of 1996...as recent as September 1998, AWRE hit an all-time low of $4 1/2. In 1999, the huge ADSL sector move took it to as high as $87, before settling back to mid-40's.Are any ADSL companies making any money? Of course not. "It's the Future Stupid"....getting back to Fibre Channel, how many so-called professionals wished they owned that "dog" quasi-Fibre Channel company Emulex ( EMLX )..almost a year ago, you could have owned this "mutt" for $5 5/16 ( 6/18/98 )...as recently as 6/7/99, it traded at an all-time high of $89 3/4 ( now at $79 3/4).What happened to EMLX? In their most recent quarter, their revs were up only 21% vs YA but Fibre Channel product sales grew by +159% over 1998..their total Fibre Channel revenues were 62% of their total sales and FC dollar shipments totalled $11 million...and yet their stock is trading at $700 million market cap...what has changed with EMLX since a year ago since clearly sales are good but not spectacular? Answer: 1) the number and quality of OEM wins over the past 6-8 months 2)Wall Street support/analyst coverage precipitated by EMLX follow-on offering:
<<A final prospectus relating to the offering may be obtained from BancBoston Robertson Stephens Inc. at 555 California St., San
Francisco, CA 94104 at (415)781-9700; Dain Rauscher Wessels, a division of Dain Rauscher Inc., at 60 S. 6th St.,
Minneapolis, MN 55402 at (612)371-2800; Morgan Keegan & Company, Inc. at 50 North Front Street, Memphis, TN 38103 at
(901) 579-4100; or Needham & Company, Inc. at 445 Park Avenue, New York, NY 10022 at (212)371-8300. >>
3) Fibre Channel/SAN/Storage are in the midst of becoming the hot buzzwords on Wall St and the Fibre Channel companies have been "re-priced" as money flowed into the sector.
How is 1999 any different/same for ANCR the Company/Stock?
1) FC/SAN market awareness/momentum/actual deployment now in rapid progress ( see above )
2) Back-to-back impressive OEM announcements, eg Hitachi Data Systems and Sun. SUN has put ANCR on the Map/radar screens of Wall Street ( bankers/brokers and funds ). It has shipped more fibre channel drives than all other companies. Sun is a dominating force on the Internet in terms of server/storage sales...This means an installed base of Fibre Channel drives just waiting for those thousands of ___hubs to be replaced...the ramp could be swift/impressive..I have heard VERY HIGH numbers BUT they sound almost too good to be true..let the numbers speak for themselves in Q4 99/Q1 Y2K..
3)Virtually ALL of ANCR's Reg D and Reg S holders are long gone ( perhaps with the exception of $250,000 of Reg D left unconverted as of Dec 31/98 ). The floorless convertibles are no longer a factor. Now there are Inrange warrants to contend with ( 750,000 in total ..I am unsure if any/all are vested yet ).
4) There is a figurative sign hanging over the Blue Circle Drive door that says " Under New Management"...this Mgmt appears to be gaining both respect and fans on Wall St. The new salesforce is experienced in OEM and Storage sales as opposed to LAN/end user sales..
5) In 1996, Ancor had SQNT as its "big" customer.In 1999, Ancor has Sun. No comparison..Sequent has $500-700 million revenues while Sun has $11 billion revenues . A big difference to Ancor's future revenue stream..and Wall Street is waking up to it. Not to mention Hitachi Data Systems and ...
6) National Nasdaq listing may now be imminent, especially with Reg S and Reg D shares out of the way. In 1996, the lack of meeting Nasdaq minimum net asset requirements and the Nasdaq concerns about the potential overhang of the floorless Reg S shares prevented ANCR from achieving NMS listing.Both hurdles appear to be moot today.
7) More Wall St coverage may be imminent, assuming that the Company follows thru with plans to ride the wave of Wall St money flocking to Fibre Channel.IF they don't do a secondary, IMHO, they will be sold...perhaps much sooner than most Longs want to see but still at a premium to today's price.Bad news for Shorts.
8) Sun is a ringing endorsement of Ancor's product performance, technology/architecture/scaleability, cost effectiveness and future roadmap. Quoting the movie "Goodfellas", "we've been made". Is there any doubt that the Sun deal will create a positive domino effect on other Tier 1/2 OEMs making their decisions in favor of Ancor? No major risk averse OEM wants to stick their necks out on a vendor that is questionable as a going concern. Now, if I'm sitting in Sun's shoes, I am VERY motivated to BUY as many Ancor switches within the next 1-3 years AND I want Ancor to win as many OEMs as they possibly can because as ANCR stock goes up, I stand to benefit $$$ millions...this is not rocket science..."Beam me up Scotty"...
9) the current momentum behind FC/SANs coupled with the growing momentum behind Ancor ( OEM wins and technology validation )make the prospects of a buy-out much more likely in 1999/Y2 2000 versus 1996 when the FC market was virtually non-existent.
10) In 1996, ANCR was the ONLY public pure Fibre Channel play. There was zero benchmark/peer group to base any kind of valuation upon or support ANCR stock in a news vaccum. As far as Wall St was concerned, the FC market sector was non-existent back in 1996. In 1999, there are now several perceived Fibre Channel plays all of whom enjoy enviable Wall St support.Ancor's most direct comparison from a Wall St perspective is Brocade ( BRCD )currently valued at $1.5 Billion. BRCD has already proven that a fibre channel switch company can achieve a $1.5 billion market cap on only $28 million trailing 12 months revenues and $50-70 million forward 12 run-rate.
In summary, the above provides some perspective to make an informed decision whether or not to hold, buy, sell or short ANCR at this time. If I were looking to short the stock, my guess is I might be able to scalp 2-5 points IF all the stars were aligned against the stock market and ANCR has a major setback. The flipside is if I was a SHORT who had no clue about what was happening behind the scenes in terms of other OEM decisions/announcements, possible equity stake/buyout talks, timing of NMS listing/secondary offering in the wings and large institutions initiating/increasing positions, then I would be rethinking my risk/reward on my SHORT...then I have to worry about my fellow shorts and if we're all going to cover( buy ) at the same time? I wonder how I would feel IF I was short at $14-18 and I woke up one morning to see an announcement that ANCR was being acquired for $25-35 OR if ANCR were to announce yet another Tier 1 OEM contract?
At that point, I wonder what my chances would be to cover while minimizing my loss? Would I get a margin call from my broker telling me to come up with the cash to cover my short immediately?? On the other hand, WHAT IF I woke up to see BRCD announce IBM as a new customer? Would ANCR longs and weak hands freak out and panic-sell OR does Smart Money already know about this very distinct possibility and consider it a non-event? DECISIONS..DECISIONS..LOL. |
