Bruce L(ee?),
Good post. Pretty soon you'll be like me and be able
to write all day about COMS.<g>
>>..This is fundamental analysis - something I've never tried
before...<<
I prefer fundamental analysis, but lately COMS ups and downs
defy all logic, so I'm delving into TA to try and understand
it's volatility. So, we're both looking at COMS from
different ends and ending up in COMS favorite
word - 'convergence'.
>> I hope I made some sense.<<
Made a whole lot of sense to me. I think I agree with
everything you've said. It's good to have others look at
it from a different angle. Also, there's so much about
3Com that what you've said is just a starting point, and it would
be good to break down each item and really get into it. This
will probably happen when we crack $40 and everybody will
be coming to this thread to get the inside scoop on COMS.
If COMS does do really well, it will have to stay sharp and
constantly prove itself. It won't have a free ride like
CSCO has had for the last year. IMO, competition will become
intense, but COMS's long term strategy and Eric B. will hopefully
keep 3Coms a few steps ahead - somewhat like Dell is doing
with the boxmakers. M.Dell built up his BTO system a while
ago, and I don't think Compaq can just create it's own in
6 months and be on par with DELL. Same with 3Com. When, CSCO,
INTC & CPQ, LU, and others try to get into 3Coms space it
will be two late and harder to do than one realizes. This
was evident, when, as you pointed out, last spring, INTC tried
to bump COMS out of the way with NICs. It just turns out
to be COMS advantage since COMS can add more value to the next
generation NICs and get compensated for that. The more
the world gets networked, the more profitable it will be for
COMS and others.
Some comments:
>>...they had "nailed" the channel inventory problem. They have implemented new accounting procedures that are more rigorous than any in the industry that will eliminate surprises.
<<
I take Eric B. at his word. In the beginning of Dec. '97, he
laid the cards on the table (the big fiasco everything had
turned into). His solution was to redo the entire channel
system - start from scratch. His goal was to have no more than
around 4-8 weeks worth of inventory, for any product.
This would allow the Street
to track inventory very easily (so ANALyst loved it). It would
also help COMS track it's inventory and control it much better.
It reminds me of the DELL built-to-order system (BTO). DELL
keeps at most 10 days worth of inventory. So, COMS is
using the same principle and the ANALyst like that. They
can see that expenses will be controlled more and more. The books
are more 'open' now, so COMS cannot lie to the ANALyst about what's
in the channel.
There's only one small problem, which has been the root of
the problem all along... 56K modems have to sell. If COMS
doesn't sell, who cares how efficient they are. This is the
point that the ANALysts are now scrutinizing COMS very carefully.
The root of this problem is not 'overstuffed inventories' as I
used to think. It was the modem wars. It kept people from
buying, but hopefully modems will start selling now....(another
long story)
>>...NEW products developed just in the last one year represented 40% of total sales in the quarter. He said that the company has received more new patents in the last year than ever before in its history; more also than any of its competitors...<<
Not only has COMS had to worry about digesting a huge merger, then
the modem wars, but a MAJOR product transition phase. All this
adds up to a very difficult juggling act. If the modems had
been selling last year, it would have supported the company until
its product transition was more firmly established.
The GOOD NEWS...I think the 40% is better than expected for the
newer products, so it looks like their kicking in faster
than expected. ANALysts will start thinking that even if modems
don't ever sell, the new products will kicking in soon enough
to start buying COMS shares. (mostly, I think most of them
are keeping a sharp eye on COMS to see that last earnings
report wasn't a fluke)
>>This is evidence, folks, of a growing company, a company that is
not going to have to worry about shrinking margins.<<
A lot of the newer higher end products will give COMS higher
margins. That's what everybody misses. COMS is stereotyped
as a NICs & modem company. But this is starting to change.
Also, COMS being an efficient manufacturer will be able
to maintain margins even on cheapo stuff. They are that
type of company. There not made like CSCO to have incredible
margins. Their strategy is to make products more mainstream
and have decent margins...not real low margins like the DDs and not
real high like a CSCO.
>>..It probably does include new versions of old products...<<
New versions. MSFT calls them upgrades. Look how MSFT looks
like it's doing with Win98. What's wrong with upgrades? That's
why 3COM will always be ahead of INTC or any NIC maker for example.
There's always a need for a better product at a reasonable
price if the product improves productivity.
Just last week, they were asking COMS why they don't want
to get into the 'core' area, where CSCO and LUCENT are duking
it out. COMS is satisfied to stay within the 'edge'. When VoIP
comes along, there will be generation after generation of
products that will be needed in the desktop area. COMS said
they will have plenty of work to do in upgrades.
Personally, though, I think COMS is leaving the 'core' area
open for consideration and I think they can eventually get
into the same areas as the CSCOs and LUCENTs are into. But, first
they have to get their 'bread and butter' business working.
>>Until now, most sales have been to individuals who use them as pocket planners etc. and have developed a cult-like loyalty to the Pilot. However, in the future, due to new capabilities of the Pilot(e.g., BlueTooth), sales are going to fueled by enterprises. Thousands of software engineers and companies, including the former inventor/developers of the Pilot are creating new software applications for it that will make it all but impossible for competitors to overtake Pilot's lead.<<
I don't know if you live in the Washington D.C. area, but it sounds
like you read this "great article" about the Palm in the high-tech
employment section today (they had a special on what the hot employment areas of the future will be). I never realized it, but there's around 7,000 developers for applications on the Palm OS. I think it said there's around 40+ companies that do nothing but make
apps for the Palm. It said that all the frustrated Newton
Apple developers have had a second chance at staying in the field
they love. The Palm is much more than a 'personal organizer'.
The two main directions that it's now going in are: a) database
apps from Oracle and Sybase with integrated functionality of
SAP R/3 enterprise software (whew!!!) b) mobile computing, so it's
in Motorola's and Ericcson's camp.
It seems to me tha they have a whole lot more people working on
it than does MSFT on any hand held devices. There are some
other hand held devices with their own OS, but they're very
small. The incredible thing is that, it seems to me
that the Palm OS is very close to being the standard now. This
is just as important, if not more so than the device itself!!
The next extension is for the OS to be able to control all
devices, which is why MSFT is desperate to get its MSFT CE
going. But, I think the Palm OS has carved out a niche. I just
hope that COMS knows how to handle this 'incredible gift' that
they've stumbled on. If they don't, hopefully, Oracle, Sybase,
SAP and others will make sure they do. (Also, as you mentioned,
IBM has a stake in keeping the pressure on MSFT...another
great ally to have)
>>The rap is that this is a "commodity" product whatever that means; low margins, I guess.<<
That's right.
>>However, no one in a long time has dared to deny that COMS made
the best modems around and that it is the market leader.<<
My understanding is that USRX had a monopoly on modems, and
seemed to be doing pretty well with them. I agree, if
a company is the #1 maker of an item, and it's profit margin
is somewhat low, it can still make a lot of $$.
Hopefully, what will happen with COMS modems, is that the
competition will deteriorate due to inability to sustain
losses from the Modem Wars, where COMS, being financial
more sound can out wait them. Also, COMS/USRX modems
are superior in quality, and the ISPs will find this out. When
this happens, COMS will have its 56K v.90 modem monopoly
which it's had to wait much longer than it expected. Better
late than never....
joe |
