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Technology Stocks : Advanced Fibre (AFCI) ** IPO -- Ignore unavailable to you. Want to Upgrade?

To: Bald Eagle who wrote (1373)	12/13/1998 12:25:00 PM
From: E_K_S	Read Replies (2) \| Respond to of 3299

I agree - Here are some additional observations I noticed from the 1977 annual report. First, I checked all the property ownership records in Petaluma (this is public information) and found no listings of any real property owned by AFC. I then went back to the 1997 annual report and noticed (pg.35) that both office space and certain equipment are all under operating leases. As a long term investor, I would prefer for AFC to own their new manufacturing facility (that utilizes 'flow' technology). With interest rates at all time lows, and attractive tax benefits to companies that utilize the new depreciation schedules, AFC could build more (stockholder) equity and shelter next years excess free flow cash flow by purchasing rather than leasing. IMO this provides the company a better long term growth strategy for building stockholder's equity. ============================ There is pending litigation discussed in the annual report regarding "hiring a former DSC employee"...who now holds the position of Vice President of Product Planning (is that Ms Catherine Millet?). She is responsible for product planning, marketing communications and marketing programs. She has 23 years of experience in the telecom industry. What concerns me is that this litigation has gone on for several years and has required the company to incur substantial costs and resources. Is She Worth It?? ================================== AFC has had some sour agreements with a few of their licensing deals in the past, specifically in Asia. AFTEK Hong Kong was liquidated 8/10/96 and represented about 2.1 million in sales in 1995. Then in 1995 AFC's agreement with ITRI and a member company failed to pay royalties for AFC's ASIC technology. Arbitration has been on going through 1998 but again many of the company's resources have been taken up in resolving disputes rather than selling product! From my observation, it seems like there is a management problem specifically in licensing and establishing enforceable technology transfer agreements. I do realize that China is a very difficult country to contract with and AFC has now established regional offices in Hong Kong and Shanghai, but several other high tech companies have found ways to sell into this region without incurring ongoing litigation and patent infringement problems. ============================ Finally, AFC utilizes proprietary ASICs. From my research I believe the sole-source supplier is ADI (Analog Devises) but I am not positive. How exposed is AFC if (for example) a Lucent acquires ADI? A large competitor could squeeze AFC if production limits are applied to AFC's ASICs or unit prices are increased substantially. I just hope AFC has a solid fixed priced contract agreement with their ASIC manufacturer and AFC has made contingency plans. ====================== To Summarize: --------------- There are items over the past few years that might indicate some ongoing management problems that continue to raise their ugly head from time to time. Specifically noted are some contracting, licensing and perhaps procurement items that a "proactive" management could have avoided. This investor would like to see our company build their asset base over time including the purchasing of buildings and land and financing these assets with free flow cash flow or acquiring low interest long term debt. This is another area of management (ie. Financial) that appears to have a short term view when in fact they should be looking out at a longer time horizon. I continue to be a long term investor and believe in their technology. A new CEO could bring in the necessary management skills to allow AFC to grow and build long term stockholder's equity. A friendly merger might accomplish this faster, especially one with manufacturing facilities in ASIA. 3COMS come to mind. ...Just more food for thought and observations.... EKS