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

To: Mike Buckley who wrote (16970)	2/2/2000 1:32:00 PM
From: Eric Jacobson	Respond to of 54805

Re: HLIT Mike, I think the points you raise are excellent. On hypergrowth and tornadoes, this is always a tough one that some of the other hunters have also struggled with. I was using the following guidance from the manual: "This inversion, in turn, stimulates a tornado, or hypergrowth - not untypically 300% per year in the every early going, 'slowing down' to 100% over a longer period - as every supplier in the category seeks to ramp capacity to take advantage of this extraordinary state of affairs" (p. 33). I agree this is not very clear and doesn't specifically refer to revenues. Even so, since HLIT's revenues hadn't met this standard, I was reticent to declare the tornado. As you mentioned, I think one could reasonably conclude the market in general is in a tornado, or at the leading edge of a tornado at the very least, based on a variety of factors. A word of caution on HLIT's revenues. The CEO announced during the 4Q CC that they have the least visibility at this time of year and that revenues are likely to be flat or possibly down from the 4Q to the 1Q. This is a regular season situation in this industry based on two factors: (1) cable upgrades slow down in the winter, especially in northern climates; and (2) customers are figuring out their annual upgrade budgets and may not have authority to issue purchase orders in the early going. Typically, the month of January is lost and orders start trickling in in February. On market share, I think you are right - if one is interested in Kings, it would be worth the effort to figure out the relative market share of the competing vendors and also to determine if the company is gaining market share over time. I will try to follow up on it. This could also help determine whether the tornado is underway and is having the desired effect for the market leader. According to the manual: "The key to the tornado from an investor's point of view is the astonishing impact it can have on the relative market share of the vendors competing within it. Typically at the outset, there are a handful of plausible candidates for market leader, all bunched together, each having market share within shouting distance of each other. Sooner or later, however, one of these vendors shoots out of the pack, rapidly distancing itself from the others" (p. 33). So, if the tornado is underway, and HLIT is the market leader and potentially a King, then they would very likely be gaining market share over time. Thanks for your detailed review. I think it's helping us all refine some very important concepts. Eric