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To: DownSouth who wrote (30460)	8/25/2000 12:17:10 AM
From: tekboy	Read Replies (3) \| Respond to of 54805

An interesting piece by the author of the "Photonics Revolution" series at Briefing.com... Disruptive Technologies 24-Aug-00 00:08 ET [BRIEFING.COM - Gregory A. Jones] Clayton Christensen made the concept of "disruptive technologies" famous with his 1997 book The Innovator's Dilemma." But understanding the concept of disruptive technologies is not the same as identifying them in action. Two recent technology issues that we have addressed both center around disruptive technology debates: an optical vs electrical telecom infrastructure, and a fibre channel vs IP storage area network (SAN). Optical v. Electrical In addition to the ongoing Photonics series, we also visited the optical v. electrical issue in a Tellabs (TLAB) Story Stock on Tuesday. In the Tellabs story, we argued that the sharp decline in TLAB over the past month probably reflected the risk that Tellabs' digital cross-connect business would ultimately be toppled by optical cross-connects as part of the paradigm shift from electrical to optical telecom networks. That prompted some of the usual protests, namely that optical wasn't ready for prime-time as it can't yet deliver the routing and administration features that electrical can. True to an extent. But optical can now deliver a light signal 4,000 km without regeneration - Broadwing (BRW) just completed trials of this technology with Corvis (CORV) gear. If you can get traffic onto the optical network with just one electrical conversion, deliver it cross-country, and have one more conversion before it arrives at its destination, you do not in fact have an all-optical network, but you are close enough that it's big trouble for electrical gear-makers like Tellabs. Even that two-OEO (optical-electrical-optical) conversion goal has not arrived yet, but the technology is there for it to be a reality. The massive bandwidth that can be delivered at a fraction of the cost of current bandwidth will be a disruptive technology. New carriers that build networks from scratch can skip the SONET protocol, ring topologies, and electrical cross-connects of the past, and build an optical network with DWDM technology and a mesh architecture. The resulting network might not initially have the same quality of service as current made-for-voice networks, but if the price is several orders of magnitude lower, it's a safe bet that many end-users will accept 1 second restoration times (in the event of service disruptions) instead of the current 50 millisecond standard. The mistake being made by many observers of this industry is that they are not focussing on the end-user. In arguing that the current paradigm will hold, they look at legacy carriers ordering legacy equipment from legacy vendors. If that's the entire universe, then of course there won't be disruptive technologies. But the customers are the key. If they will buy a service with slightly less reliability but 1/10th the cost, then somewhere there will be venture capital to fund a company that will deliver the service (take a look at privately held Yipes or Cogent for examples). There is no question that the Baby Bells will keep buying digital cross-connects from Tellabs and others in the short run, because the Bells have a vested interest in a legacy network. But customers requiring huge bandwidth for data traffic don't. And start-up carriers that are looking to answer customers' desires don't either. The voice network may carry on with its 50 ms restoration times and digital cross-connects for several more years. But all of the growth is in data, and if data goes optical, electrical gear-makers are in trouble. We could see the legacy network hang on for years delivering low value voice services, while a new and separate data network explodes, and eventually swallows up the voice traffic as optical technologies advance in the next 10 years. Fibre Channel v. SoIP In a brief on Brocade (BRCD) the other day, we got into the debate of which SAN protocol will ultimately win - fibre channel or some form of IP-based protocol. Brocade dominates the fibre channel switch market, but if fibre channel as a protocol loses, so too could Brocade. Yet unlike the optical vs electrical debate, it is not yet clear that SoIP is a disruptive technology. The problem with SoIP (storage over internet protocol) is that it is not yet a protocol at all, which makes a comparison of FC and SoIP difficult at best. We do know that there is a much larger knowledge base for IP in the world than there is for FC, which could lead to greater acceptance of SoIP. But we don't know if SoIP will efficiently and reliably meet the needs of SANs. Unlike network connectivity in general, SAN users will demand near perfect reliability when it comes to moving sensitive company and customer information around a wide area network. It is far from clear that SoIP will deliver this at a lower cost. If you don't like technology battlegrounds like this, then Brocade probably isn't the place to put your money. The combination of this raging debate and Brocade's extreme valuation will make for some sleepless nights. But we did want to point out that while optical networking will clearly disrupt electrical networking over the long term, the jury is still out on fibre channel and SoIP. In monitoring the FC/SoIP battle, however, we will once again need to focus on the key party in the proceedings: the end user. SAN equipment makers and SAN service companies will all tell you that FC is here to stay, but watch their customers. If SoIP can offer sufficiently reliable storage solutions at a lower cost, it could be the disruptive technology that takes down FC. Listening To The Customer The most important mistake that we see when investors attempt to identify disruptive technologies is that they spend too much time listening to those who have a vested interested in the legacy technology. And it is critical to note that this includes the brokerage community. Existing banking relationships are almost always with legacy technology providers. Take the Brocade example -- we must all guard against being comforted by the assurances from the brokerage community that the FC/SoIP battle is no threat to Brocade. All public SAN companies are invested in FC, and thus there is little incentive for a sell-side analyst to get behind SoIP. The same is true of Tellabs -- you can expect many strong defenses of its prospects as well. You need not ignore this research, as it does contain some insights, but never forget that you cannot identify a disruptive technology without listening first and foremost to the customer. Greg Jones - gjones@briefing.com

To: DownSouth who wrote (30460)	8/25/2000 1:55:10 AM
From: tekboy	Read Replies (1) \| Respond to of 54805

Links for Storage Weenies, from the Fool boards.fool.com boards.fool.com tekboy/Ares@weenieroaster.org

To: DownSouth who wrote (30460)	8/25/2000 6:56:22 PM
From: sditto	Read Replies (1) \| Respond to of 54805

I'm not a CPA (although I've worked in a public accounting firm and have the scars to prove it) but I have gone around the block more than a few times with our CFO on accounting for software sales and professional services in a publicly held company. My purpose is not to belabor the point but to help us gain a better understanding of these measurements since cash management is often a very good barometer of how well companies are performing. Revenue and earnings are good but cash is still king. Part of the confusion is different industries and even different sectors within the same industry account for sales and receivables in different ways. In the world of project oriented packaged application software the following definitions hold true: Pipeline - The quantity of sales a company is projecting but has not yet closed. This figure is measured in $ and is often weighted by probability of close. Measurements of the sales pipeline are often given to analysts to provide a sense of future demand and earnings "visibility". Sales - The quantity of sales a company has closed and can recognize as revenue in the current period based on FASB rules. This figure is measured in $. Backlog - The quantity of sales a company has closed but has yet to deliver. This figure is measured in $. Backlog has two components - the amount of work remaining to be delivered in projects already underway plus the amount of projects sold but not yet started. If the time required to meet the latter component of backlog is too high (months) it could negatively impact sales as clients look for sources with faster delivery. Work In Progress (WIP) - The quantity of implementation work which has been delivered but not yet billed. Measured in $ and treated as an asset but not always broken out from A/R on the balance sheet. Accounts Receivable (A/R) - The quantity of implementation work which has been billed but not yet paid. Measured in $ and treated as an asset on the balance sheet. Days Sales Outstanding (DSO) - The number of days it takes on average to collect a single days worth of sales. Typically calculated as (WIP + A/R)/(Sales In A Period/Days In A Period) and measured in days. DSO can go up if the average size of sales is increasing but in general rising DSO or DSO higher than peer or industry norms is bad.