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URL:  https://boards.fool.com/stibbles-good-questions-about-jds-uniphase-and-12058600.aspx

Subject:  Re: How lightly do we hold the King - JDSU Date:  2/27/2000  9:53 AM
Author:  BruceBrown Number:  1181 of 8780

Stibbles,

Good questions about JDS Uniphase and holding royalty 'lightly'. All we have to go on is historical trends of previous and other royalty plays within in their technology adoption life cycles to base our course of action.

Some interesting study could be gleaned from former King Compaq, the shining Prince Dell, EMC and how the various parts of the game that gorillas play in which are not considered gorilla games, but would fit under the classification of royalty games.

Dell and EMC were two of the top performers of the 90's along with Cisco, AOL and CMGI. One gorilla, one Godzilla, one Godzilla incubator, a King and a Prince. No matter how tightly or how lightly you held them during the 90's, the returns were this for hanging on the entire time:

CMGI--57,191%
EMC--68,314%
DELL--72,400%
AOL--81,400%
Cisco--124,825%

When Compaq lost their 2x market share as Prince Dell gained on them, you saw the stock come down and become another Prince that had lost its edge of holding the majority market share. Yet, the historical return for Compaq including the drop off after the market share lead was lost, is 6,140% plus dividends. Had you sold at the end of 1998 or early in 1999 based on gorilla game knowledge that their market share leading position as the King was indeed gone, your return would have been over 10,000% at that time. Yet, the PC technology adoption life cycle is not finished, but it certainly is mature. Compaq usually tracked Intel quite closely as the Gorilla and the value chain King of hardware OEM's went through the adoption life cycle.

Here's the chart:

http://www.siliconinvestor.com/research/comp_chart.gsp?cs=CPQ&cs=INTC&cs=&cs=&cs=&cs=&cs=&n=240&p=month

Here's another chart just to toss in a various mixture of technology stocks and bench mark General Electric for the same time period (assuming the PC technology adoption life cycle began in 1980):

http://www.siliconinvestor.com/research/comp_chart.gsp?cs=CPQ&cs=INTC&cs=EMC&cs=GE&cs=MSFT&cs=DELL&cs=AAPL&n=240&p=month

I consider GE to be a 'great' investment. Even as Compaq rose to the King position and lost it, Compaq still far surpassed GE as an investment in terms of return from 1980 to present day. Not bad for something that should be held 'lightly', but of course it all depends on when one bought the investment. You'll notice on the chart above, that for the time being - everything has turned down at the end of the chart except for EMC and Intel (Well Apple's kind of hard to read with such prodigious company.)

That's only one technology adoption life cycle we are looking at, but certainly a huge one for study in terms of length and scope. Although the book mentions 'lightly', using the longer term time frame as an investor - the burn for not timing an exact exit is certainly not a severe degree. How long have we been hearing the 'death of the PC'. There has been no major stampede rush to the exit where investors incurred huge losses if they have followed the cycle well. A lot of the 'death of the PC' talk is about the investment community moving their profits from the PC technology adoption life cycle into other life cycles that are younger and still on their way up. Yet, there is an order to the selling - or at least there appears to be an order at this point.

We will need to look at the same type of slowing growth/maturity and changes for JDS Uniphase and of course EMC. EMC is anchored by the huge growth demand for storage capacity as the world becomes cyber digital and needs the capacity to store all of this information. Yet, we are all looking at the other alternatives in the storage field as investments in addition to EMC. The growth and demand for fiber will fuel companies like JDS Uniphase for some years to come. I don't think that it is going to be a one day event when somebody announces "Okay, we've laid all the fiber in every corner of the globe. Game's over. Wash your hands and go home." The signs will be the growth rate, how JDSU maintains their least 2x or more market share above any other Prince in the field and what to do at that point with your investment money once it is threatened. I'm sure it will take years.

In the meantime, while we are waiting for those years to go buy and the money is compounding and growing with well executing companies, we spend our time looking for places to put some money for other technology adoption life cycles that are younger, fresher and ripe with opportunity. Sounds too darn easy and calculated doesn't it? Well, there will be glitches along the way, but the hope is that the rewards will outweigh the glitches.

Time, being the most critical element of the investing equation, is in our favor - provided we have enough of it.

BB




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