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Subject:  Re: BRCM vs. JDSU Date:  5/3/2000  3:16 AM
Author:  BruceBrown Number:  2378 of 8806

robrat wrote:

In my opinion, the same is true for JDSU. I am (very) long on JDSU, but it looks like a King not a Gorilla.......The real difference between a King and a Gorilla will emerge later when the market hypergrowth slows down. I am keeping my fingers crossed that JDSU will emerge as a gorilla.

I was in a hurry when I posted my brief comment that Broadcom is in a royalty game, not a gorilla game in response to Jon80FLT's question:

Could my two biggest investments get into a fist fight? What does happen when a King (JDSU) goes head-to-head with a young Gorilla (BRCM)?

I simply didn't want anyone to confuse some royalty plays with gorilla plays. That doesn't mean I don't think both JDS Uniphase and Broadcom are excellent investments. I hold shares in both companies. If we apply the GG criteria, summarized so well by Uncle Frank at Silicon Investor and listed on the FAQ on that thread, discussion would end with Broadcom and JDS Uniphase competing in royalty games in dominant positions.

A summary of my check list in Gorilla hunting:

1. discontinuous innovation
2. proprietary open architecture
3. high barriers to entry
4. high switching costs
5. strong value chain formation
6. tornado market existant or foreseeable.

Keeping your fingers crossed that King JDS Uniphase emerges from the tornado as a gorilla won't, unfortunately, change the criteria of the game it is involved which is a royalty game. It's an excellent investment, but in the context of gorilla gaming, it is appropriate to identify it correctly using the gorilla game criteria and terminology of what a gorilla is. The same should be said for Broadcom.

Here I go again with my comments which are not meant to be high and mighty. I'm simply reporting that what others have found when applying and reviewing all of the criteria to both JDS Uniphase and Broadcom reveal that the conclusions are royalty games. A King needs at least 2x the market share of the nearest competitor. JDS Uniphase has this position. If I had the time to provide some links to previous discussions about JDS Uniphase, I would - including Geoff Moore's comments. Yet, I've got to jump in the shower and head off to work.

Once again, both Broadcom and JDS Uniphase are excellent investments in my opinion due to their dominant positions and the growth both will continue to experience. I've made a lot of money in royalty games over the years, but investors need to understand the risks involved in royalty games and not confuse them with gorilla games. Both games have their unique risk/reward scenarios.


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