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

To: trendmastr who wrote (16757)	6/22/1998 1:00:00 AM
From: George Dawson	Respond to of 29386

trendmaster, My guess is that Ancor will be worth a fair amount if FC switches are shipping in volume and assuming they are competitive from both a technological and marketing perspective. The problem (that I think I have commented on before) is that FC is probably a time limited solution. I don't know if clustering will still be big in 10 years or if FC will still be used - but maybe not. If you wanted to acquire Ancor you would need to consider the upside potential for a specific time frame vs. just buying switches. With current market demand to me I think it makes sense to just buy switches. A reasonable analogy is prescription drugs. I am on a committee charged with approving prescription drugs for a health plan. The basic idea is to approve effective and inexpensive drugs, with minimal duplication. For most big drugs ($1B in sales/yr for a pharmaceutical company) there are two or three competitors. The drugs all work the same. There are usually very minor differences in side effect profiles or curative effects. Sometimes the actual chemical structure of the drug is nearly identical. These companies do their best to maintain high visibility and sell these products. They know the prescribing patterns of physicians and do their best to change them. The hype they use is regulated by the FDA and therefore much more tame than we have encountered in the FC world. The amazing part is that they succeed. There are physicians who have "favorite" drugs that they prescribe - despite the fact that the drugs are nearly identical. Some sales forces are legendary. I had one company representative say that his competitors could "sell water and get a 40% margin". I guess that's my indirect way of agreeing with you. Great engineers (or pharmacologists) do not guarantee great sales. Much of the competition in the pharmaceutical industry is focused on fairly minor differences in products with identical effects. That being said - the new Ancor ASIC is unique. I think it would be a fairly involved process to design it (or Brocade's) from the ground up. The evidence is that McData was apparently trying and ended up using Brocade. The other OEM companies have plenty of good and great engineers, but they are qualifying switches rather than making their own. George D.

To: trendmastr who wrote (16757)	6/22/1998 1:08:00 AM
From: Joe Wagner	Read Replies (1) \| Respond to of 29386

Value is based on Net Present Value of future revenue streams. The uncertainty of what they will be is what causes the stock to fluctuate. I am no expert on this but with a company in this type of situation one has to look out at least two years to value it properly. A short sighted outlook for the next year might be : 3million x 4 quarters = $12 million in revenue If they make a 10% profit, that = $1.2 million 1.2/ 11 million shares= $.11 per share at a PE of 30 this equals a value of $3.30 or get one OEM deal that puts revenue at $20 million with 10% profit PE of 30 $5.40 PE of 60 $10.80 with 20% profit margin it would be double with PE of 30 $10.80 PE of 60 $21.60 A longer term outlook would more accurately value a company like this as follows: In two years with an exploding Fibre Channel switch market Ancor could probably capture on its own, without an OEM much more than 10 or 20 million in revenue. Therefore if it can stay afloat it should be worth substantially more in a few years. Because of the huge potential for future income Ancor should carry a very high PE. If in two years Ancor had 25 million in annual revenue with a 10% profit margin and a PE of 120, the price would be $27 per share. This sounds very possible to me with no OEMS because the market should be growing very rapidly at that time. Someone a while back predicted a switch market of almost $1 Billion in a few years. If in four years Ancor has annual revenue of $80 million with 20% profit margins, and a PE of 120 it would be valued at $175 per share. Sincerely, Joe W.

To: trendmastr who wrote (16757)	6/22/1998 9:30:00 PM
From: Craig Stevenson	Read Replies (3) \| Respond to of 29386

TM, This seems to be a recurring theme. Those of us who have actually met Ancor's management ARE impressed. They seem to be a solid bunch of people. I also have no doubt that Ancor's products are sellable, but to date they evidently haven't been selling them very well. The sales area seems to be the real problem area. The question of valuation is certainly a good one. Unfortunately, I don't have the answer. Back when Cisco bought Granite for $200+ million, I thought Ancor's technology was probably worth that much. Now, I'd probably settle for half that. <g> The patent issue is one that still troubles me. Until Arcxel came out with a Class 1 / Intermix switch, I thought Ancor's patent would make it extremely difficult for anyone to duplicate their technology. Evidently, it was possible to design a switch without infringing on Ancor's patent, which would seem to make that intellectual property less valuable. One thing is certain. Great engineers DO NOT guarantee great sales. Ancor has some great engineers, but they haven't seemed to help the bottom line yet. I think the most valuable part of Ancor is their ASIC design, but what the actual value would be is unknown. If the recent rumors surrounding OEM losses are true, Ancor's uphill battle will continue. It will become more and more difficult to compete with Brocade (and possibly Vixel/Arcxel) as those companies ramp revenues quickly over the next year or so. They will simply be able to out-muscle and out-maneuver Ancor, because they will have a lot more financial resources at their disposal. In a worst case scenario, it may end up being a Microsoft versus everyone else type of situation. While it isn't impossible to compete effectively with Microsoft, it is extraordinarily difficult to compete directly with them. I don't want to make it sound like this is an insurmountable problem for Ancor, but I do think it will take decisive action by management to address several apparent shortcomings. The Fibre Channel market is real, and opportunities exist. Ancor must find a way to compete effectively in an increasingly crowded and competitive market. Craig