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Technology Stocks : The New QLogic (ANCR) -- Ignore unavailable to you. Want to Upgrade?

To: Kerry Lee who wrote (11983)	10/30/1997 8:47:00 AM
From: Craig Stevenson	Respond to of 29386

Kerry, <<I would only be guessing..perhaps IBM microchannel, Mac???>> They made such a big deal over the Mac introduction a while back that I think MicroChannel would be more likely. <<There is a VERY LARGE order which should either ship Q4 or Q1 98. My info suggests that the uncertainty is not IF but WHEN. I think they are suggesting the worst case scenerio, which again relates to my point about lowering expectations and the overhang of the lawsuit.>> Evidently, this is a big enough order to make or break an entire quarter. Let's hope they elaborate on it. Craig

To: Kerry Lee who wrote (11983)	10/30/1997 9:07:00 PM
From: Kerry Lee	Read Replies (2) \| Respond to of 29386

Addendum to my previous post # 11983. The reserve against product returns was $150,000 which was charged to cost of sales. The actual revenue impact to Q3 was $300,000. Therefore, actual revenues in Q3 before deducting the return were $3.7 million, a 95% growth over Q3 1996. My guess is that they previously booked this revenue for stocking orders in late 1996/early 1997 to certain resellers/distributors . I'm guessing that these distributors/resellers have had difficulty over the past year in selling to end users at the high prices of the old gig switch. With the new MKII introduction, the end user list price has since been dramatically reduced from approx $60,000 to $40,000 ( 16 ports ). As far as the $250,000 severence charge, I am somewhat surprised in the fact that Lee/Cal did not have the foresight to write this off in Q2, which is what I had mistakenly assumed earlier. Even though the former executive gets paid monthly for a 2 year period, they should have written it off sooner and be done with it. This is Accounting 101 stuff that the new CEO and CFO obviously recognized as an opportunity to get off the books now instead of spreading the accounting expense over 2 years ( even though the cash isn't paid out immediately ). The good news is that it would appear that real SG&A expense is now only running at the rate of $1.9 million per quarter. It looks like they burned at least $500,000-$700,000 to sponsor that Netswitch tour in the Spring. Also bear in mind that these decisions were made before either Carla or Ken came on board. As I mentioned last night, clearly Ken Hendrickson and Steve Snyder wanted to clear the decks on potential future surprises as they cannot be blamed for these expenses. As far as going forward statements, they were obviously constrained by the pending litigation while at the same time they painted a realistic picture on the unpredictable nature of projecting timing of revenues in an emerging growth technology such as Fibre Channel. A month ago, I believe that Ancor was banking on a significant size contract to a certain federal government department to ship in Q4 and that the status of this is that it should ship either in Q4 or Q1, depending upon when the budget restrictions are lifted. I think they decided to assume the worst case scenerio that the govt budget may not open up this quarter as opposed to crossing their fingers that they would close the contract and ship it in the last 6 weeks of 1997 ( no Ancor official will confirm or deny this if you call them ). Should they have allowed the Street to assume that Q4 was on track given what they know now or should they have waited until they got a more definitive decision from this customer in November and then later break the news of not meeting Street revenue expectations? I think in the past, Steve O Hara might have rolled the dice and gambled that the customer would sign and give them a PO in November. Ken Hendrickson obviously took the conservative route, not wanting to risk losing his own credibility, let alone provide more ammunition to the lawyers. You can win a Govt contract but the timing of the budget availability is totally out of your control. Obviously, when the size of a single order is worth $2-4 million, that can make or break a quarter. Despite the apparent need of this thread to vent their frustration and blame the Company for lack of performance,this is no different than trying to accurately predict timing of ADSL, Cable Modem or IP telephony deployment where companies in these fields are also development stage and have low/unpredictable quarterly revenues. The difference is that those sectors have huge market valuations relative to FC companies. It is only a matter of time before FC plays get Wall St visibility. For example, based on the OEM deals that Emulex has locked up, it is only a matter of time when its valuation catches up with its potentially explosive growth. The adapter players like Q Logic and Emulex realize that the new team at Ancor and its new switch/technology make it a major player in FC switches and they are eager to partner with Ancor in providing OEM solutions. One cannot predict the exact week/month when Wall St catches on to FC and ANCR..Look at the ultrafast stock price appreciation on Netspeak ( NSPK ) on virtually no change in fundamentals. FWIW, some Wall St firms are attempting to be ahead of the curve. I heard that a regional investment boutique out of NY, Morgan Keegan will be organizing a Fibre Channel Investment conference early in 1998 and Ancor is one of the companies invited to participate. Be on the lookout for signs of Management Confidence in this company's future as the self-imposed black-out period for Insider buying is lifted ( they mentioned in the Conference Call that they restricted themselves from buying 2 days after quarterly results are released..I do not know the legal requirements of when 144's would have to be filed to disclose insider purchases )..Stay tuned.