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Strategies & Market Trends : Three Amigos Stock Thread -- Ignore unavailable to you. Want to Upgrade?

To: Sandra who wrote (4920)	5/19/1998 12:15:00 AM
From: Phil Jacobson	Read Replies (1) \| Respond to of 29382

Hi Sandra, re: HYBR Well, I don't know about what happened last time but this time it sounded like they're going to restate earnings. Never seen that be a positive development! I've got long term concerns with companies like HYBR. Here's what I sent Sergio a couple days ago when he asked me to take a look. =============================================================== Sergio, I looked at HYBR and didn't see anything very compelling about it. There is an interesting aspect in that they won a patent case for their cable modem technology but I couldn't find any information on how exactly the patent is important. I suspect they will use it to license technology to other modem companies and not be able to take advantage of it themselves to a large extent. Here's why I'm skeptical: Market issues ============= People in the industry have talked about cable modem internet access for years. There are severe barriers to entry here, ie, after all the talk nothing substantial exists. This can only be because the incredibly dull-witted cable industry execs can't get off their monopolistic butts to make it happen, or because the trials haven't been successful. I suspect it's both. The cost of service during the trials is about $70/month for a residential customer and that's too high for the time being. It's possible there's a niche here for commercial customers but most of these will simply get a T1 direct link from UUNet or another national carrier and use Cisco routers to access the net directly. There was another wave of shouting in the press last week about the onset of cable modem service but I'll believe it when Cox or TCI decide to roll it out to a million customers instead of continually doing these 30,000 person trials. Specific issues w/ HYBR ======================= HYBR is too dependent on a single bet for internet access. Why worry HOW the customer gets access, let's invest instead on companies that will make money no matter which distribution method becomes the standard. Betting on a company that does nothing but make cable modems is in my opinion far too risky at this stage of internet development. Invest in companies that have their bets hedged and can make money whichever way internet goes. These would be service providers like AOL, Mindspring, and Earthlink, and of course the content companies, who would do great if high speed access were to become the norm. We don't know yet how long broadband to the home will take to develop, and when it does we don't know if it'll be mostly wireless (Ricochet), based on ADSL modems through existing copper network, or via cable modems. I'd bet against cable modems because the industry has been so slow to move and has a tendency to operate as a cash cow without risking much on new ideas. One more thing - in order for a cable modem company to succeed it takes two additional success stories upstream. First, the cable company has to do a great job marketing their high speed service, second, the cable company has to sign up a great ISP that provides the actual internet access without screwing up. So far I have not seen any major ISPs involved in these trials and that concerns me. Competition ============== Bay Networks also makes cable modems. Don't know who makes better cable modems but Bay certainly has the awareness edge and should do well if the area takes off. HYBR does have a reseller agreement in place with Ascend, which is a really good development. Management ================== The CEO looks great on paper. He's a former head of AT&T's $2 billion consumer products division and before that a VP at Sun Micro. However, he's been in his job for 2 years 4 months now and I can't see that he's really accomplished anything substantial. He has yet to sign a deal with a major ISP or cable company. The fact that he's from AT&T could be another reason the company seems to be acting so slowly to take advantage of this "tremendous" market opportunity. Financial ================== The last info available that I could find was from 1997 and showed significant deficits. Do you have a link to any updated info? Overall ================== If cable modem technology does happen to take off HYBR may do well. In fact if there are continued announcements about this aspect of the industry in the press, it will make a good trade. But fundamentally this isn't where I'd bet my internet money. Risk/reward ratio is too high in the risk side and at a minimum will be dead money for at least a year IMO. Phil