Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : e.Digital Corporation(EDIG) - Embedded Digital Technology -- Ignore unavailable to you. Want to Upgrade?

To: JimC1997 who wrote (15473)	10/21/2000 2:22:37 PM
From: ekn	Read Replies (2) \| Respond to of 18366

kinda quiet these days jimbo. all of your own timelines and predictions of multiple oems by october have all but passed. i sense that you are quietly unnerved now --fear and doubt have come to the forefront. is this thing headed back to the pennies? could be!I love this stuff and the last line is a doosy! i have some land in maine id like to show you sometime! To: JimC1997 who wrote (14373) From: JimC1997 Thursday, Aug 24, 2000 3:46 AM ET Respond to Post # 14424 of 15492 Thoughts on some implications of the new e.Digital product As both TWOMIL and I have discussed in recent postings, one of the key driving forces which will insure the success of a PC music peripheral product, such as that announced by e.Digital today, is the need to raise profit margins in the very competitive PC marketplace. As features have become standardized market forces have cut PC margins to the bone. The major brands need high margin peripheral add-ons to restore their profit margins. Given the intense interest in internet-delivered digital music by PC users, peripherals which facilitate the acquisition, storage and playback of that music are very likely to have high demand and could command premium prices. e.Digital has been quietly targeting this market for some time now, while most of the attention paid to the company has centered on the portable music player opportunity. How big is the market? IDC publishes PC brand shipment reports and a recent summary was reported by CNET News: news.cnet.com. The top six U.S. PC brands and their respective shipments (projected 2000 sales based on Q2 trends on 1999 actuals) 1. Dell 9.48 million units 2. Compaq 6.82 million units 3. Hewlett-Packard 5.74 million units 4. Gateway 4.56 million units 5. IBM 2.67 million units 6. Apple 2.32 million units All Others: 16.86 million units Total Market: 48.45 million units Hewlett-Packard is growing faster than any other brand and may soon overtake Compaq for second place. Sony (in the "Others" category) is also rapidly increasing market share. Assume for the moment that e.Digital is successful in obtaining a contract to supply a custom music jukebox with just one of these brands. What would this mean in revenue? Averaging the units shipped by Compaq, Hewlett-Packard, Gateway and IBM gives 4.95 million units. Next, assume that the manufacturer manages to convince just 10% of its consumers to buy the music peripheral (an absurdly low number, given the reasons cited above.) That would still give e.Digital an order for 495,000 units! Assuming a retail selling price of about $300 per unit, the manufacturer's price would be about $200 and the supplier's (e.Digital) revenue would be at least $100 per unit. Combining these two yields an estimated sales revenue to e.Digital of $50 million! Remember, that is just one PC manufacturer, and assumes a very, very low penetration rate. Now, what are the prospects for a bundled portable music player with that juke box peripheral? Extremely high. Take the above revenue and add at least 50% for the sales generate by a portable player (assuming a $50 wholesale sales price per unit to e.Digital). Now the value of a PC manufacturer contract is at least $75 million (again using very conservative projections.) Remember this is before any revenue from Lanier, other MicroOS applications (coming soon, IMO), Maycom, etc. What would this mean to the value of e.Digital stock? In mid-March I posted an analysis that projected a market value for e.Digital based upon the realization of $100 million in revenue, using the example of Gemstar as a valuation model. (Gemstar has the proprietary VCR+ technology, a very small employee base and very high margins. It commands a price to sales ratio of 71 currently.) Given the change in market desire for technology stocks in general, I would not expect the same price/sales ratios that I projected earlier, however, I believe that it is still plausible to assume a price/sales ratio of 50 for e.Digital once its market position was established. Taking the $75 million revenue projected above and applying a price to sales ratio of 50 yields a market capitalization of $3.75 billion, which equates to $30 per share. Again, this is without the likely revenues from other music players, Lanier, other MicroOS applications, etc. How likely is this scenario? I think that in the next few weeks forthcoming announcements from e.Digital will shed a very happy light on this question. JimC Actually I know Robert Putnam reasonably well and it would be consistent with the approach that he and Fred Falk have followed to send out broad hints to the current shareholders alerting them to potential developments. I do not believe that I have a reputation for mindless hyping, so I posted that message only after considering the probability that I was correctly interpreting a shareholder signal. There is nothing wrong with the company investor relations officer doing what I suspect Putnam has done here. I am quite familiar with the rules on material non-public information disclosure and this would not violate those restrictions. Putnam and Falk have often acknowledged their obligation to the shareholders who have kept this company alive through the lean years. You will also note that Robert has begun using the phrase, "We know much more than we can say at this time" in his e-mail replies. This is a pretty clear confirmation that significant positive developments have occured which cannot be disclosed due to confidentiality agreements. The non-dislosure agreements give the consumer electronic companies and other licensees time to put together marketing programs to maximize the free publicity which will accompany their announcements. Based upon several years of close observation I feel comfortable in opining that news releases are not far off. Perhaps as close as the next two weeks, but certainly by the time we receive our NASDAQ listing.