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Technology Stocks : Applied Microsystems -- Ignore unavailable to you. Want to Upgrade?

To: Smilodon who wrote (99)	3/18/1998 1:31:00 AM
From: Mark Bracey	Read Replies (3) \| Respond to of 134

First, I'd like to say that I love the embedded marketplace. I have a degree in Electrical Engineering and my focus was embedded development. I worked as a developer for about 15 months but then moved on to a Field Application Engineering position for a company which makes incircuit emulators and logic analyzers. But I would have a hard time justifying investing in one of those companies. I first became aware of Applied because they were a competitor. At the time, the key companies in that market were HP, Applied, Texktronix, and to a lesser extent, the company I worked for Kontron Electronics. Kontron is based in Germany and a last report was wholly owned by BMW. Over the years I heard many stories from the Applied sales people and how they were going public. But I also heard many stories of how they were near deaths door. It took 12 years for them to finally go public. In the late 80's Applied almost went away because of the company I was working for at that time. That was Northwest Instrument which had acquired a company by the name of Atron (remember Bugbusters). Atron had a 68020/30 emulator which was in my mind, the best emulator ever to be produced. Applied could not compete and lost a lot of money. Fortunately for them, Northwest used that product as a cash cow and did no further development. That product made HP and Applied very afraid. For those people that aren't aware, an inciruit emulator is an instrument which allows through the removal (typically ) of the CPU in an embedded system, a means to get access to the hardware/firmware on the system to provide a mechanism for software debugging. Anyway, the embedded tool market, in relation to Applied, can be divided into two categories. Software Tools (C/C++ compilers, debuggers, RTOS, libraries) and hardware assisted debugging/development tools (incircuit emulators, codetest). Applied falls into the latter. The key companies in the hardware assisted are HP, Applied, Laterbach (European), Huntsville Microsystems, and EST Corp. HP recently got out of the incircuit emulator business to focus on a logic analyzer/BDM/JTAG/OTC solution. (BDM/JTAG/OTC refers to a solution where the chip makers themselves have provided a means to communicate to the silicon directly, thus reducing the need for incircuit emulators). The use of these On Chip Debugging facilities has muddied the water a bit for those customers who had been used to using emulators. Instead of requiring an emulator which can sell for upwards of 35 to 50K, a solution which has 75 to 80 percent of the capability of an emulator can be purchased for anywhere from $500 to $3500. An emulator has become almost a last ditch approach for those really nasty bugs. Another problem for the instrumentation companies is that the Software Tool providers have also added a lot of debugging capability in their products, also reducing the need for the hardware assist. This is one of the reasons why Applied has moved to their new (fairly) product Code Test. They wanted Code Test to be the Pure Software/ Numega like code coverage tool for the embedded market. This idea was not original. Northwest Instruments had a similar product in the 80's (another cash cow) called the SAW (Software Analysis Workstation). In fact, the product manager for the Code Test had come from Northwest. His name is Caine O'brien and I believe he has since left Applied. He showed me the product the last time I saw him which was at the Embedded Systems Conference several years ago. The major players in the Software Tools market are Wind River Systems (WIND), Integrated Systems (INTS), Mentor Graphics (MENT: They acquired Microtec Research), and Software Development Systems (private company). At this point, the only safe investment of all these is probably WIND, which has shown that it can meet and beat its numbers consistently. Even some of the smaller companies like Metrowerks and Microware (remember OS/9) which both got a boost from Motorola by having MOT invest in them, are struggling. So...on to Applied as an investment The biggest problem I see in investing in an embedded only company is that the revenue stream is very inconsistent. It is almost impossible to forecast more than 3 to 4 months out because these tools are usually the last thing purchased. Every company I have worked for it has been the same problem. Meeting quota. Another reason I am wary of this market as an investment is how fragmented the market has become. Besides these major players, there are dozens of smaller companies. The reason these smaller companies can exist is the number of embedded processors out there. 4 and 8 bit processors are still widely used and have to be supported. The major players have discounted this market and mostly stick with the 16 and 32 bit processors. I have worked for Kontron, Northwest Instruments (now Cayenne), Microtec Research, Software Development Systems, and EST Corporation. As VP of Marketing/Engineering for SDS I worked with WIND and INTS to help provide debugging solutions for their embedded Real Time Operating Systems. If anyone has any more specific questions please let me know. Mark