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To: John Stewart who wrote (1562)	7/27/1999 12:38:00 AM
From: Q.	Read Replies (1) \| Respond to of 3661

I asked Brian, the CFO, a few questions today. In particular, I asked about the net margin: "why is it that at a revenue rate of about $24 M, the co. earned $0.26 in the 2nd Q of 1996 and $0.06 in the 3rd Q of 1997, but is losing money in the most recent quarter?" What I got for an answer to this open-ended question was stuff about how the co. has a higher breakeven point now because it is now multi-product. This wasn't very helpful. Not only did it tell me nothing I didn't already know, it also didn't really answer the question. "Why should multiple products be inherently lower margin than a single product," I asked. He said something about the new products being early stage and consequently having higher development costs. So then, I asked, "are you saying that the decline in net margins is attributable to R&D expenses by itself, or is it also a lower GM on the newer products?"' He didn't really have a good answer. Finally I asked this way: "is the reason for the higher breakeven point that the co. has become progressively less interested in the bottom line than it was in earlier years, or is it that the co. is building its expenses in the expectation that the top line will be much bigger in this cycle than in previous cycles?" and he answered "the latter". I then asked whether he expected the net margin to be larger or smaller at the top of this cycle, compared to previous cycles, and to my surprise he said "larger." This surprised me, considering the growing cost structure of the company. I'm not sure exactly why he thinks he will attain record net margins, and I'm not entirely sure that he even knew what the net margin was in the previous cycles, but I did find that he expects all the new product lines, when they mature, to have higher gross margins than the strip line ... maybe that accounts for his expectation. I'm grateful that he returned my call, and I did learn a few things ... those things are good ... and I realize that he is new ... but just the same I found that he just didn't have ready answers to questions that seemed pretty basic to me. Maybe after a few more quarters. And I sure do hope that their expecation for this cycle (much higher top line along with record net margins) is actually fulfilled.