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Technology Stocks : LUMM - Lumenon Innovative Lightwave Technology Inc. -- Ignore unavailable to you. Want to Upgrade?

To: pat mudge who wrote (1621)	3/22/2000 1:06:00 PM
From: UR_In&Out	Read Replies (1) \| Respond to of 2484

Based on the above agreement, Molex's right of first refusal on any shares offered for sale gives them control of Lumenon's future. They have Lumenon in a corner. They can't force them to sell, but if they tried to sell to anyone else, they can block it. They also have a non-exclusive right to manufacturing should there be a change of control. Must disagree here. Molex cannot block the sale of Lumenon. They only have the right of first refusal. If, say, Nortel were to offer $10 billion for Lumenon then Molex can exercise its right by paying the $10 billion dollars instead. Yes, Molex also has some rights if a tender offer were to be made that they could not match financially, but they cannot block the sale of the company. And based on Molex's SEC filing, they've taken gains from certain investments. I have no way of knowing if these gains were from Lumenon's shares, but if it hasn't happen yet, it will eventually. As an insider Molex would be required to file with the SEC should they be selling any Lumenon stock. There have been no sales of Lumenon stock by Molex. By your admission, Molex is giving 25% margins. That sucks. Well, your hindsight is 20/20 here. However, I feel that Lumenon management did not err in giving the first year's production to Molex. It guaranteed a certain cash-flow and eliminated any need to have a marketing department. And a net margin of 25% does not suck. A normal margin of 40% or more would be whittled down by other SGA expenses anyhow. So, if the new facility won't begin producing until 2001, how many months will they be in production before Molex's first year ends? Well if Lumenon starts shipments to Molex in July, 2000 then by January, 2001 (when they will be producing 500 chips a day versus 20 chips a day), Lumenon will still have six months left to continue shipping at the maximum of 400 a month. In effect, Lumenon will be ramping up their sales volume significantly, even while still under the terms of the one-year agreement with Molex. When the 500 chips a day are being produced Molex will either have to buy the additional production, or allow Lumenon to sell them in the open market. In either case, the increase in revenues will be significant. Molex has the right of first refusal for all Lumenon's chips for the next three years: <<<<After the first year, Molex will have the option to purchase all of our production of the jointly developed products at fair market value for the succeeding three year period.>>>>> My point regarding other OEM partners is simply this: if Molex has the right to all production of jointly developed products for three years, who would waste their time co-designing under these circumstances? I can imagine many OEMs stepping up to do business with Lumenon, and not just for DWDM chips. Lumenon's ability to custom-design a variety of photonic chips combined with its ability to deliver product within weeks at a fraction of the cost of competing technologies should ensure that OEMs will be willing to consider doing business with Lumenon. The Molex agreement does not hinder Lumenon from dealing with other OEMs. You say: Molex does not have the right to take production of other channel count chips, such as 40 or 128 channel chips. Considering Lumenon only has an 8-channel chip ready for testing --- with 16 and 32 coming on later --- I'm not sure how strong an argument this is. And I'm not being cute, I honestly don't know. Actually Lumenon has 8, 16, and 32 channel chips available for testing now: From Lumenon's press releases: At OFC, the Company also introduced its fully packaged 100 GHz 8-channel DWDM along with its suite of wafer level 16 and 32 channel DWDM components. And, Lumenon is working on bringing to the market an extensive line of DWDM chips that includes 25 GHz, 50 GHz, 100 GHz and 200 GHz 8, 16, 32, 40, 64 and 128 channel devices. Now why would Lumeon, who products are market-demand driven work on designing 40, 64, and 128 channel chips unless someone wants them? In my opinion Lumenon is already working with OEMs other than Molex and sales of these products will commence in 2001 after the bugs are worked out in the new factory. You say: Dr. Najafi has made it quite clear that he is willing to relinquish the reins to a more qualified CEO. At this point, that's akin to closing the door after the cows have gone. Not quite. It is never too late to learn from our mistakes. Lumenon is only on the verge of going into production. Why would anyone consider them a lost cause? Too bad the Molex agreement blocks any chance of being acquired. That would have been a beautiful card to play. Patently false as I have pointed out above. Lumenon holds its cards close to the vest and is not prone to excessive PR or hyperbole; some may fault it for its apparent errors in getting where it is today, or its lack of an experienced CEO, or its lack of marketing skills, but I think it is holding the winning hand with its technology and the honesty of its management. An acquisition is still possible.