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.

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

To: tinkershaw who wrote (39284)	2/15/2001 5:21:17 AM
From: Bruce Brown	Respond to of 54805

And I would bet that most of the above non-G&K companies are growing slower than the G&K. Hey, but perception is perception. You might be surprised. Some of them have pretty fair records of EPS, dividend and revenue growth. No need to go into each of the companies even though I do follow them, but as an example I would point out that Harley Davidson receives a premium for a few reasons. It has one of the best consistent 'controlled growth' elements in terms of their EPS, revenues and dividends in the past decade in regards to S&P stocks. No ball busting hypergrowth, but year after year of controlled 15 - 18% growth. Some investors (such as myself) have found that quite attractive over the years. Another reason is that it is perceived of as being 'recession proof' because their system of controlled growth includes end customers pre-ordering the set number of bikes they will build which means that their supply and demand is already 'fixed' for the next 12 - 18 months no matter what the economy does. The bikes are already sold. That part of their revenue and profit line is lined up. That doesn't mean that their other sources of revenue in the clothing and accessories line will be immune to slowing growth, but the main source is 'locked in'. That makes it unique in the group I pointed out, but various other elements could be mentioned in regards to the issues I listed. Some of those elements would include how certain segments or industries react at various points in the economic cycle. We could make the case as to why Pfizer and why Halliburton are at their current valuations based on the location of the economic cycle and energy conditions in terms of oil. In terms of your study of Brocade Communications, I would highly suggest reading the Son of SAN folder here at SI. It used to be called the Fibre Channel thread, but the tracking portfolio was consolidated recently from the original which began in 1997. Plenty of discussion on all matters related to the storage industry. As you are aware of my posts on the fabric switch game at the Fool, I did 'avoid' investing in the entire basket of BRCD, VIXL, ANCR, ZOOX and simply went with Brocade in the early going based on the balance sheet and income statements when they went public. I had thought about Ancor as the most realistic 'next' player for consideration, but to date have never followed through with that. I am now an 'investor' in McData in the director class market simply because all EMC shareholders received McData goodies in their portfolio recently. I follow Brocade, McData, Inrange and QLogic along with the HBA leader of Emulex. TheStreet.com reported on the Emulex presentation this week at the Robertson Stephens Technology Conference following their Regulation FD announcement last Friday evening saying they saw a 'blip' in their supply chain that could cause concern if it continues through March in an inventory correction that would require adjusting previous guidance for the quarter. This immediately set off a reaction throughout the storage industry stocks. TheStreet.com's report of what management said is worth the read as to why they made the announcement: thestreet.com "Then, he turned the podium over the CFO Rockenbach, who said the company was still on track to meet its prior expectations for 15% to 17% sequential growth (around $80 million in revenue) in its fiscal third quarter (which ends in March), but that it had seen some reduction in visibility it felt was important to disclose." Inrange reported this week an excellent quarter and we will hear from Brocade next week on the 21st as to their quarter ending in January. In addition, storage software company Veritas reported at the Robertson Stephens conference this week that January revenues were right on track. thestreet.com Nothing has been immune to inventory corrections or slow down, but I prefer to view it as a shorter term situation (two or three quarters - maybe more) in the overall longer term picture for the data storage and networking industry. That isn't to be mistaken that I believe we will see robust growth in spite of the economy. I don't think anything is immune to the economy or inventory correction as the waves of growth are adjusted for it. Yet, it is hard to judge how long or how short a blip in the growth will last. Are we in the middle of it? The beginning? The end? How do all of those fit into my investing time horizons for shares in the storage industry? As an example, by the time I heard about the Emulex announcement, the stock was already down 50% early Monday morning. Talk about inventory correction. If one steps back and views the larger picture, there are a lot of niche markets that address specific 'broken' problems with their 'fix'. Rather than view it as one technology will win over the others, I continue to see that it will be a combination or variety of solutions that address specific niches that will all win in the longer haul. It won't all be Fibre Channel, Infiniband, FC over IP, iSCSI, etc..., but a combination of all will make up the total solutions market. The growth and prospects for each technology remain compelling. Some have mentioned that Brocade's Fabric OS is much less of a software intensive game than IP core routing or edge routing such as the software that Redback's products offer their customers. Although Brocade would love to see their vision of everyone licensing their Fabric OS, plenty has been written about the struggles between SNIA and FCIA in terms of interoperability and protocol issues in regards to Brocade's 'war' to standardize around their Fabric OS over the past two years. I don't know the full issues of the barriers to entry for the software game as well as what the pairing of Brocade/Network Appliance and Brocade/Cisco will do to the development of that software portion. Whether we look at it from a royalty standpoint or a gorilla standpoint, the margins remain a compelling attraction to at least this investor. However, I temper that with my continued look that more than one technology is going to 'win' in the overall cycle. So I want exposure to the various niche segments within the data industry via leaders like Brocade, McData, Veritas, Emulex, Intel, EMC, Network Appliance, etc... because of the growth and probability for solid survival by all. I also imagine we will see some continued consolidation in the space over the years. BB