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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Eric Jacobson who wrote (16920)	2/1/2000 1:31:00 PM
From: Normandi	Respond to of 54805

Eric. Well done..and a sincere Thanks for your in depth analysis. Cheers Norm

To: Eric Jacobson who wrote (16920)	2/1/2000 1:46:00 PM
From: LindyBill	Read Replies (1) \| Respond to of 54805

Eric, I have just read you HLIT report. I think you have now scared off all of the others on this thread who are preparing reports. I know I sure wouldn't want to try to write one at the level you have achieved! I have also just read your report on your G&K list thread. When are you finding time to sleep? :0)

To: Eric Jacobson who wrote (16920)	2/1/2000 2:01:00 PM
From: LindyBill	Read Replies (1) \| Respond to of 54805

HLIT: The first impression I am left with of this company is that it is doing fairly customized installation of Optical networks. I get the impression that the install what they make, they do not sell it to others to install. Their customers do not place orders for the product with them, but rather it is an engineering sale to build and install their systems. This gives them a lock on their product being used, but limits the use of it. The company can grow only as fast as they can hire and train a field engineering group.

To: Eric Jacobson who wrote (16920)	2/1/2000 3:28:00 PM
From: StockHawk	Read Replies (1) \| Respond to of 54805

Re: Harmonic (HLIT) Project Hunt Report Excellent report, thoughtful, nicely balanced analysis. Thank you. Some thoughts on cable modem service: you wrote >>Broadband connections provide internet content roughly fifty times faster than dial-up (56k) modems for roughly twice the cost ($40/month vs. $20/month). << and >>In a traditional architecture, each node was designed to serve 500-2000 homes...performance can become sluggish as customer usage increases. This was experienced by some @Home customers several years ago. << I believe most cable modem users experience such slowdowns on a daily basis. Cable, for most users is likely to be closer to 5 ties faster rather than 50 times faster than a dial-up modem. I therefore found this next piece quite interesting: >>The LightWire architecture is intended to eliminate this bottleneck and provide additional capacity by (1)subdividing nodes to serve approximately 50-100 homes, and (2) providing DWDM technology at the node<< This would appear to be a valuable innovation, as the primary negative of cable modem service verses DSL is generally said to be the ultimate slowness of the shared service as usage increases. >>there is not a proprietary open architecture. Most of the intellectual property in use is in the public domain (i.e., DWDM), is jointly developed and is shared (LightWire)<< I wonder if LightWire might have the potential to develop into a proprietary open architecture? It was developed with AT&T and, so far, AT&T is the only customer - and just in test phase at that - but who would control sales to other potential customers? Perhaps HLIT retained enough rights in the end product to make this an interesting development to watch. Would you agree, or am I missing something here? StockHawk

To: Eric Jacobson who wrote (16920)	2/1/2000 6:43:00 PM
From: Mike Buckley	Read Replies (2) \| Respond to of 54805

Great write-up, Eric! The stuff that you and all the Hunters are doing is better than anything I see in the financial press. There's some unbelievably great stuff going on in Project Hunt. --Mike Buckley

To: Eric Jacobson who wrote (16920)	2/2/2000 2:14:00 AM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

Eric, I didn't take the time to intially delve deeply into your wonderful presentation of HLIT. But Lindy insisted that I put the financials under a microscope. Blame him if you don't like what I write. :) The broadband market is in the midst of a tornado as measured by adoption rate of broadband subscribers, although HLIT's revenues are not currently meeting hypergrowth standards. I agree with the first part of that but wonder about the second part. I realize that you might be waiting for stronger winds, especially because the mass market potential is so large there's a good possibility the winds will get stronger. Even so, there are some numbers in there indicating the leading winds of a tornado at the very least: 3/31 to 6/30 growth: 25% 6/30 to 9/30 growth: 39% 9/30 to 12/31 growth: 20% Sequential quarterly growth of that magnitude indicates a tornado to me. I realize there is no precise definition of a tornado, but the summary point in the book is that one of the authors looks for 100% annual growth for starters. Seeing year-over-year growth in the last two quarters at 99% and 118% as you pointed out and combining it with the sequential growth I show above, I think it can be successfully argued that the tornado has begun. Another indication of the tornado is the company's critical mass that is surpassed as a result of the rapidly increasing revenue. In only five quarters, the net margins consistently increased from 2% to 17%. During that same period even the gross margins increased by a whopping 20%. I'm not suggesting that we should consider that data as a new criterion for hypergrowth, but since rapidly expanding margins are an investor's dream that is so often the resulting symptom of hypergrowth, it's tough to ignore it in a discussion about tornados. For those looking for a perfect world, probably the best argument that the tornado has not begun is that the rate of growth has not consistently inreased. While I think a consistent increase in the rate of growth is a terrific indicator of a tornado, the winds of some tornados don't always blow with such consistency. At the very least, if you had come to the conclusion that the company is a potential gorilla I think you would be looking at the growth data really, really seriously. One last point about the numbers. You mentioned that with a 45% market share and six leading competitors, it is unlikely that HLIT has twice the share of any other competitor. For those interested in Kings, I think it would be well worth the time to determine that. It is very possible that HLIT is a King, depending on how the market share of the other competitors shakes out. As an example, if the #2 company owns only half of HLIT's share, that would leave 33% to be divided among the rest. That's not at all an impossible scenario. I still think your report sets a standard for the very best financial reporting, putting most of it to shame. Just my opinion. --Mike Buckley