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

To: Bellvie who wrote (127)	4/29/1998 1:22:00 AM
From: Smilodon	Read Replies (2) \| Respond to of 134

APMC had one of the best presentations I have seen at the conference so far (H&Q tech 98). And thats not just because I own the stock, as QLIX, another holding, had one of the worst. I highly recommend you call investor relations and ask for a copy of Bob Deinhammer's presentation. But here are my notes to give you a quick overview and to respond to some of Mark's issues. The embedded systems market is approximately $913 mil in size and is broken down as follows: - 51% Real time operating system & Integrated development Environment - 21% Hardware enhanced debugging - 13% Compilers and software debuggers - 12% Simulation, modeling and autocode generation - 3% Embedded test APMC currently addresses Hardware enhanced debugging, Simulation, modeling and autocode generation, andembedded test or 36% of the market. They classify their offerings into 4 categories with the following growth rates: High-end debug (-34%), Low-end debug (56%), Test products (38%), Debug services (39%). The high-end debug is the legacy products that Mark B. has been telling us about, and as you can see, it is a rapidly declining portion of their business. It is now down to about 25% of their business, and will alway be at least a small portion of their business. The low-end debug are the silicon based products Mark referred to that sell for a much lower price. Fortunatly, APMC seems to be a little further along the transition than he thought, as these products make up about 60% of their sales. Also, just as he said, Japan is behind the US, and was still buying the older debug, but late in 97 had also begun their shift to the low-end products (ex. CodeTap). The last 15% of their sales is the test products (Ex. CodeTest). APMC's recent problems are due to problems in Asia, particularly Japan. This started in Q4 and continued into Q1. In both cases, the visibility has become very poor, as the sales manager for that area thought sales were fine until late in each quarter. This is a big change from the past, when Japan sales were very easy to predict. They think that Asia has bottomed, but expect it to improve gradually. They also had some slowness in North America in Q1. They said they thought this was more of the industry's seasonal slowness that most companies see, but unfortuneatly, APMC had no backlog to absorb any weakness. Now, the fun part: They laid out a very nice view of how Microsoft will change the embedded systems business and their plan to capitalize on it. Basically, they approached MSFT about licensing CE in September. They also contacted Metrowerks about their IDE. Putting it all together, APMC will be able to supply all the components for embedded systems development, and address 100% of the market instead of 36%. But, it is important to note, this isn't just reselling other products. Instead, they will all be integrated to work together. APMC also will offer some consulting, services and software components for the Win CE developer. The next revision of Win CE that will be out this summer will have hooks for APMC's Code Test product. And when version 3.0 of CE comes out next year, MSFT claims it will be a true RTOS that can compete with WIND and INTS offerings. The APMC CE partnership seems to work well because it helps each participant. As Mark said, Metrowerks had no hardware or RTOS. MSFT had the OS, but no hardware or significant experience in embedded systems. They also are not so familiar with the level of support and service required by embedded systems developers. APMC wants to combine their hardware with MSFT and Metrowerks, and be the integrator of the different products. I haven't really done their strategy justice with my review. But I was very impressed with how clearly thought out it was. It makes sense to me, but lets see what Mark has to say. Finally, they think the CE initiative can do about $5 mil in revenue in 99. If the other products continue on with their past trends, they think they will grow about 30%. Regards, Archer