Comments on Fred's letter
I've read through Fred's latest letter and have these initial observations:
1. The letter puts quite a bit of emphasis on trade-marked technology tools
(MicroOS, MicroCAM, M4P2, AIMS)
This suggests that the licensing efforts have become more differentiated, with the company building a rationale for various prices depending upon the technology package employed in the design. It is good to see the company working to increase the perceived value of its engineering services through branding.
2. Engineering staff increases were mentioned, perhaps to reassure that the company continues to grow.
3. In line with the staff increases it was noted that engineering resources have been dedicated to developing new products in four areas:
- Digital video
- Automotive stereo
- Home stereo
- Cellular phone accessories
- Set top boxes
4. e.Digital is working with multiple OEMs to develop branded products in the above applications.
5. Lanier shipments have resumed at a more normal level and seem more likely to continue under the new ownership of the Lanier medical voice products group, but nothing definitive was stated.
6. Revenues would appear to be about $600,000 in the March 31, 2001 quarter. I would guess that about $75,000 will be engineering fees and about $525,000 from cQuence shipments. These revenue estimates can be derived by considering prior years' revenues and the statement that total fiscal year revenue will be "close to equaling the total revenues for the previous three fiscal years combined." Here I read "close to" as meaning "somewhat less."
7. I suspect that little or no revenues will be derived from digital audio players in the fiscal year just ending. Most of the year's revenue is from Lanier. Since the financial results for this quarter will not be released until about June 30, which is also the end of the first quarter of the next year, the company will be in a much better position to discuss music player revenue prospects when the 10-K is actually filed. I do not regard revenues for the year past as significant indicators for the future. Of far more importance is the company's cash situation until the revenues from music players begins to arrive. In this regard Fred simply states that the company has "a good cash position." As shipments of jukeboxes ramp up, the cash flow should be quite good. I would estimate that the licensing income from monthly shipments of about 50,000 juke boxes, coupled with normal Lanier shipments, should be sufficient to cover the company's current cash outflow and bring it to a break-even financially.
8. The much-talked-about production delay speculation was dismissed as "usual initial production and day-to-day parts issues that are being addressed". Clearly Fred does not regard these problems as significant.
9. There was mention, for the first time, of a 5 GB hard disk drive jukebox platform, in addition to the 10 GB and 20 GB versions that we have heard about previously.
10. The speech recognition development for control of HDD jukeboxes was mentioned right after discussing the IBM Travelstar hard drive. I continue to believe that this next generation jukebox will be utilizing IBM's voice technology.
11. Availability of the jukebox at retail was stated to be "within the next quarter" leaving a wide range of possible introduction dates.
12. "Unannounced OEMs and licensees" were referred to, suggesting that contracts have been signed but not yet disclosed. Those relationships will be disclosed only when the products are ready for launch.
13. The relationship with Samsung was clarified by stating that the two DataPlay devices (PCMCIA storage device and a digital music encoder/player) developed for Samsung for the CES are part of a "royalty-bearing agreement"
14. Additional OEM customers with other DataPlay devices are expected to be announced when DataPlay launches its media. This is reported to be in October, 2001.
15. Media coverage should pick up thanks to the work of Fleishman-Hillard.
16. Finally, perhaps most intriguing was the reference to "annoucements concerning other product platforms beyond DataPlay and our HDD-based jukebox platform in the next quarter."
Fred clearly hears the concerns expressed by the shareholders and this would appear to be part of a new program to increase communications with the investors while maintaining compliance with Regulation FD (the SEC prohibition on selective disclosure of material facts and projections.)
I haven't taken the time yet to scan the other message boards, but I suspect that the usual crew of bashers are doing their best to downplay or attack this letter. I suggest that investors form their own opinions and ignore the rantings of that small group of miscreants.
I believe that the letter is informative and straight-forward. The company seems to be making good progress on its business plan and many exciting, positive developments are alluded to by Fred.
You can either believe management and confidently wait for the progress to translate into superior growth for the company, or you can walk away from your shares just before we begin to realize the shareprice appreciation which would occur from business success.
The choice is yours. For me, I have decided. I am going to continue to add to my position.
JimC
