AON/TPRO ALLIANCE, ANALYSIS AND COMMENTARY
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Original Announcement: Topro Selected To Join ARM2000 Risk Management Service (11/4)
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Analysis & Commentary
From: Jack Zahran Nov 4 1997 Reply #5408
Analysis of Aon Corp (NYSE:AOC) selection of TPRO as part of their Y2K services
Todays announcement legitimizes Tava Technologies (Nasdaq:TPRO) potential to
break out beyond it's Systems Integration business. Their core business revenue has
grown rapidly, particularly due to accretive acquisitions and good management. With
quick growth comes the necessary expenses to fuel this growth. We can expect the
core business to return to profitability due to economies of scale. To many, the core
business, on its own, justifies TPRO's market valuation. However, their PlantY2KOne
CD product demonstrates that TPRO is a software company as well.
The AOC announcement illustrates that as companies look to round out their Y2K
offerings, TPRO's product is singularly qualified to be included. The first few alliances
(Wonderware, Square D, and Fluor) occurred before the CD's official release. These
alliances demonstrate that industries belief in the seriousness of the problem and
TPRO's qualifications to provide a solution. AOC goes beyond the sector! After
analyzing the actual product, an outsider recognized the value and necessity of TPRO's
CD. This is telling as to the quality of the product and the growing awareness of the
embedded systems problem.
When AOC's competitor's update their offerings, who can they go to to complete their
Y2K offering? There currently exists no released alternative to TPRO! We can expect
other bundling arrangements by current and new Y2K players who are looking to offer
complete solutions like AOC's. With the subsequent refinements of the product and
momentum, any Y2K player wishing to enter the Plant arena is behooved to use
TPRO's offering. In principle, we can compare this to the bundling of an operating
system with a PC. This CD is a powerful enabling tool.
Being able to package and resell their Plant Floor Y2K experience and expertise
provides for a greater revenue stream than their 275 engineers can generate alone. It
also creates a greater demand for their on-site services allowing them to increase their
margin from services work. Their growing size allows them to resell hardware at
greater margins too. In addition, this unique CD allows them to penetrate the entire
international plant floor market without being limited by the size of their engineering
staff or their own sector representation.
As a Systems Integrator, TPRO has become a solid growing force. Now as a
Software Company, we can predict rapid growth and huge future EPS. No doubt, this
new revenue will allow TPRO to greatly expand their core business and continue to
offer complimentary Software products that go beyond the Year 2000. TPRO is not
limited to any one means of distribution. They can handle direct sales, sales through
distributers and resellers within their sector, and bundling arrangements with other Y2K
services providers (and this area alone is growing rapidly, notice Bell Atlantics recent
venture into this arena and the prices they are charging!). In addition, TPRO's Y2K
business plan allows for revenue beyond the initial cost of the CD by charging for
updates over the Internet.
We can expect TPRO to find additional ways to increase their Y2K revenues through
their software offering. The potential for this company is huge and the first indicators
are positive and re-enforcing.
I welcome any comments to the above as this is my personal observation and my own
rationalization for holding onto this position well after the end of this year.
From: jan mccabe Nov 4 1997 Reply #5416
Jack--Topro is establishing credibility with the investment community, I like to think of
it as building a foundation for the release of the CD's, and soon to come contracts. It
won't be thought of so much as a momentum play but a steady growth company with a
huge untouched market. Someone on another thread referred to "Topro's army of
CD's". However, I welcome any momentum players and short traders that would like
to join us.
From: Raju Ramaswamy Nov 4 1997 Reply #5427
Unlike ITAA (IT Association of AMerica) there is NO formal (official) certification
process for Y2K compliance methodology for embedded systems. ITAA offers
certification for any company whose Y2K methodology conforms to its certain laid-out
specifications. CBSL were one of the first to get such a recognition.
TOPRO by it alliance with AOC, has defacto got a stamp of approval on its Y2K
compliance tools. AOC with its wide reaching arms around the globe, the business
potential is incredible -- we are not talking just domestic now. From what I heard,
businesses in many asian countries are likely to be on slow track mode for new capital
projects till they grapple with overcapacities. This mean they would rather spend the
money in preparing existing plants Y2K-ready first.
From: John A. Mizgalski Nov 4 1997 Reply #5430
Would a company who believes that they are already y2k compliant or will soon be compliant, still be required to use TPRO for a final risk assessment before AON would issue that company a policy? I guess what I'm asking is, what are the determining factors that will bring TPRO and it's Cd into the y2k risk assessment process?
From: RDavidson Nov 5 1997 Reply #5438
Aon is in effect using TPRO, as it appears, as the underwriter in Y2K factory
situations. Just as in obtaining a note from a bank or a substantial life policy, the
applicant makes statements which in turn have to be verified. That's TPRO's role, to
quantify the risk. I think without the assessment, why would they issue coverage? Aon
would not know the liklihood of a loss. Overall sounds great for TPRO.
From: JDN Nov 5 1997 Reply #5448
Dear RD: The AON connection is great in that it FURTHER validifies TPRO's
authenticity. After reading somewhere this morning that not one customer has yet taken
advantage of their insurance (premiums run 65% of coverage) I question how many
actual sales may be derived from this relationship. BUT, I am glad to have it anyway.
From: David Sheridan Nov 5 1997 Reply #5452
re: >>insurance (premiums run 65% of coverage<<
Does anyone know the details of policy pricing?
Could it be that 65% premium is the price for a policy if the insured is doing their own
factory remediation, but if TPRO does the work, price goes down??
From: Gerald Underwood Nov 5 1997 Reply #5455
It would be my guess that insurance premiums start at 65% of coverage and are
negotiated downwards depending on the amount of decreased risk. This can only be
determined by an accurate risk assessment performed by a qualified company. We are
talking in the millions here for large corporations. IMO as more companies approach
deadline without the assurance of completing their remediation, the more attractive the
insurance is going to look. So a rapid and thourough assessment will become
mandatory if any true risk value is to be established.
From: RDavidson Nov 5 1997 Reply #5456
65% sounds like a premium assessed with pretty sketchy underwriting. Since TPRO
was just added to Aon team, 65% rule may soon be out the window IMHO.
From: David Sheridan Nov 5 1997 Reply #5457
Gerry and RD - I agree - 65% could be high end starting point, with substantial reductions if approved ARM2000 remediator [TPRO] gives company a clean bill of y2k health.
From: Stuart Schreiber Nov 5 1997 Reply #5458
JDN: I have a background in insurance industry. It's probably premature to think in
terms of premiums at this time. TPRO provides a useful, necessary tool to AON. It will
qualify risks and eliminate exposure. Insurance companies like to know the odds
before getting into anything. TPRO will provide critical information. This has the
potential to be very big and open many other doors.
From: RDavidson Nov 5 1997 Reply #5460
If insurance is available, and if it is affordable, and if it limits corp, mgt and director
liability, and if 'just in time' manufacturers start to look at production interruption cost.... situation could arise that a manufacturer (particularly a sub for larger entity- BA, GM, GE, etc.) cannot afford not to have it.
From: Karl Drobnic Nov 5 1997 Reply #5461
One important aspect of the insurance side of Y2K arises from an early post about
Glaxo. Someone found an announcement in which Glaxo was requiring its suppliers to
certify that they are Y2K compliant if they want contracts with Glaxo. So as the big
fish like Glaxo put pressure on the little fish like suppliers, little fish will need to certify
that they are Y2K compliant. AON offers an avenue for little fish to protect themselves
as they get backed to the wall by the big fish. Looks like the little fish will have to buy
the CD, too.
From: RDavidson Nov 5 1997 Reply #5462
Karl, As usual, you said it better than I. Y2K "certification" is probably meaningless without
insurance to secure indemnification.
From: Douglas Rushkoff Nov 5 1997 Reply #5464
Y2K certification will become as, if not more, important than compliance engineering.
Consider British Telecom, which -- according to my sources -- will soon refuse
connections to non-Y2K-compliant telcom companies. Or banks like Citibank, which
will refuse transfers from institutions that have not demonstrated compliance.
Companies will treat their interactions with other computer systems the way they used
to treat disks that might contain viruses. Except here, instead of scanning a disk for
dangerous code, they need to search through an entire computer system. The
underwriting of compliance, or the guarantee of non-compliance remediation through
insurance coverage, will be standard protocol.
From: Zebra 365 Nov 13 1997 5 Reply #5905
Note from AON on the Fool Board
Thought this favorable comment should be shared here, highlights are mine, otherwise
verbatim:
<<Besides tpro has essentially been certified by AON Risk Assessment to address the
factory.<<
Although I was not part of the team that considered who should be a part of the AON
sponsered ARM2000 (AON Risk Management 2000) program, I am familiar with the
program. I am sure that there is no "certification" by AON involved. Rather members
of the Project do their own thing as part of an overall comprehensive approach to the
Y2K problem. I would not think that AON would want to take on the liabilities
inherent in any "certification" process.
Tpro is, to my uncertain knowledge, the only vendor out there that is widely
recognized to be competent in working the Factory floor. Their market is, and
because of the increasingly difficult employment market for qualified engineers, has
to be limited to the largest manufacturers. Their services can go for as high as
$800,000 for one site (admittedly a large one). Large companies are beginning to
triage their operations for Y2K compliance work.
All this bodes well for the short term work load and profits of Y2K professional
remediation companies. It is estimated that 30% of the work on the Y2K
problem will be achieved AFTER 1/1/2000! so there will be a continuing
revenue stream after this date. Long term investors should be cautious however as
to the viability of Y2K firms into the next century. Make sure that they will have
products to sell to the marketplace after the mess is solved!
Milton Fletcher
AON Risk Services
Los Angeles |
