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Technology Stocks : The New QLogic (ANCR) -- Ignore unavailable to you. Want to Upgrade?

To: Craig Stevenson who wrote (25881)	2/1/2000 1:19:00 PM
From: WhoLovesYa	Read Replies (1) \| Respond to of 29386

Have you talked to Cal since the infamous I could have generated more revenue by selling Hot Dogs in the parking lot of the Vikings comment? (I think it was you and Cal). Truly, one of the more poignant points I have heard on a CC. And unfortunately still remains true.

To: Craig Stevenson who wrote (25881)	2/1/2000 1:44:00 PM
From: George Dawson	Read Replies (1) \| Respond to of 29386

"Am I the only one who is concerned by Greg Reyes' recent comments on ON24.COM that Brocade has won every contract it has competed for?" Hi Craig, Actually, I think that many of the concerns you have posted, including the warrants issue have been discussed here on SI. I have always said that the majority of the Yahoo posters lack credibility, even back in the days when everyone here was speculating about buyout rumors posted by two of the more notorious Ancor detractors. In addition to the fact that I would not find any positive or negative information from Yahoo useful I would also carefully consider public information like the above comment. In order for that comment to be believed, I guess you would have to believe that Brocade never competed for Sun. I continue to believe that the message boards themselves do not impact the stock price, but probably reflect the agendas of some people who have the ability to move the stock. That said, I agree that there is probably plenty of manipulation going on that is independent of both the technical and business aspects of the company. I think that individual investors are the least likely people involved. Unfortunately, the individual investor has limited information and no protection in these circumstances. There have been several complaints to the SEC over the years, with no visible action. That is the appropriate attitude to have when investing in this stock. George

To: Craig Stevenson who wrote (25881)	2/2/2000 12:45:00 AM
From: Douglas Nordgren	Read Replies (3) \| Respond to of 29386

>>I agree that Ancor's future certainly looks brighter than it did 3-4 years ago, but you now have to pay more for that future.<< Hi Craig, Indeed, and how are we to valuate that bright future we are paying for? And how much exactly are we paying for it? Once again you grace this board with imponderables, you old sod, welcome back. Ponder we must then. Companies in industries which require continuing R&D to maintain competitive advantages can be scrutinized from an R&D expenditure perspective. In emerging technology companies with little or no revs to speak of, a Price-to-Research ratio comparison can be a useful gauge of growth valuation. Aside from Capital Expenditures and Acquisitions, a company can grow its business through in-house R&D. Obviously, this is the road Ancor must travel to reach growth numbers. Unfortunately, every dollar that goes into R&D comes directly out of net earnings in the quarter that it is spent. For a company that does a lot of research, this can understate the current profitability of the current operations. The simple Price-to-Research ratio can give us an idea of how much shareholders are paying for Ancor R&D. Take the market cap of a company and divide into the trailing 12 months of R&D spending. By using the Price-to-Research ratio, one should be able to identify opportunities to purchase companies that are heavily investing money in R&D at the expense of current profits, and identify companies sacrificing R&D to the bottom line. Ancor's market cap is $1.12 billion (28M X $40), and the company has spent ~$7.5 million on R&D in the past 12 months. That results in a Price-to-Research ratio of 149, meaning a shareholder is paying $149 for each dollar in R&D. Ancor R&D was 54% of 1999 revenue. Brocade's Price-to-Research ratio, on the other hand, is 600, or its shareholders are paying $600 for each R&D dollar. Brocade R&D for 99 was ~$15 million, or 22% of their revs. In other words, Ancor shareholders are paying for a return of $150 on every dollar spent on R&D. Brocade shareholders are paying for a $600 return on every R&D dollar. Because there is really no way of directly measuring returns on a company's R&D investment, it is generally easiest to assume that one unit of R&D will universally equal X units of return on that R&D across all like companies. The return from Brocade's 1998 R&D expenditure ($14.7M) in 1999 revs ($68.7M) was $4.67 in 1999 dollars for every 1998 R&D dollar. Ancor returned $2.51 in 1999 dollars for every 1998 R&D dollar. Given that the SAN market is still in the early stages of growth and that Brocade and Ancor should be seeing accelerating returns on R&D, a factor of X=5 would probably fall into the most conservative estimates. Brocade's 1999 $15.2M R&D (5% increase over 1998's $14.7M) would convert into $76M in 2000 revenues, or a !0% increase. Ancor's 1999 $7.5M R&D (37% increase over 1998's $5.45M) would yield $37.5M in 2000 revenues, or a 173% increase. Now, in terms of Price-to-Research metrics, both Ancor and Brocade measure way off the scale. Generally speaking, a Price-to-Research ratio comparison indicates that a company is cheap relative to the amount of money they have spent on research in relation to their competitors. These would typically be companies that Wall Street has pounded due to lack of current earnings, but that should have valuable knowledge assets. According to a recent report from Dataquest, Fibre Channel component revenues have been growing at a 200% annual rate, and the Fibre Channel switch market has just begun, so the X=5 factor could get blown out of the water by either or both companies. With a Price-to-Research ratio of 149, Ancor is certainly no bargain here, but it is more of a bargain than its closest competitor. And that's the crux of the problem - Relative valuations vs. Absolute valuations. At prices now 82 x trailing sales for Ancor and 131 x trailing sales for Brocade, there's a lot of future already built into their prices. Whose expectations could be considered more reasonable? I feel like Little Orphan Annie belting out "tomorrow, tomorrow..." but that's what I bought and continue to buy. The real growth in the FC switch market is yet to come, yesterday not withstanding reality. Regards, Douglas PS - Compaq is encountering problems with component scalability within a fabric and are finding that what they really need is a cross connect architecture. Ancor is undergoing evaluation with some cpq engineers. ZOOX may count all the switch revs they want, but the Capellix is not really a switch, it's a FC-AL router cum switch. They could call it a space shuttle for all I care, it still wouldn't fly.