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No. of Recommendations: 5
Interesting article from Gartner on application servers, courtesty of OhYeah from the BEAS board. States that most people are buying high end app servers when all they really need are the cheapy low end servers. If true this would give ammunition to those who say that the app server market will become commoditized to the point that only the applications will matter, except in the high-end. Of course, the high-end is where everyone is shooting for at the moment:

http://www4.gartner.com/DisplayDocument?doc_cd=100245

P.S. Disclosure, Disclosure, Disclosure, I bought OPWV again today. The stock crashed based on two things. (1) yesterday there was some rumor that video on demand via cell phones was not taking off in Korea (I'm certain this will kill the worldwide industry), and (2) Morgan Stanley analyst came out today essentially saying that OPWV cooked the books for this quarters earnings and that therefore it will be even more difficult for them to make the coming quarter. Of course OPWV gave guidance of 10% sequential growth, even in the seasonally slow 3rd quarter. Either the former #2 man from Cisco (now OPWV's CEO) learned nothing from Chambers and controlling expectations over the years, or the man is completely dillusional, dumping all his shares as we speak, and is looking for shareholder lawsuits as the earnings conference was less than one month ago.

Nevertheless, it was worth triple volume and a massive pounding on a stock that almost every analyst asserts has enormous long-term potential, but might have trouble during the next quarter or two during the 2.5G transitional period. Currently selling for less than 2x next year's projected revenue which gives OPWV an awful lot of room to miss and still be cheap. Heck, it can lower earning projections for next year by 50% and still have a forward P/E of 36. Seems to me, right or wrong, this analyst is just following the herd (as they did at the top) as it is the safe thing to do.

But, just in case, I will be relistening to last quarters conference call where the exact questions raised by this analyst were raised and answered if memory serves. Going down with the Titanic.

Tinker
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No. of Recommendations: 2
Update, and what sort of B$ll Sh@t is going on here. I am relistening to the Open Wave conference call and the Morgan Stanley analyst is second up with his question. His question is very reasonable, is the uptick in revenue per subscriber (from $11 to $15 per) sustainable, is it a per user, or one time fees. He asked this question one month ago.

The answer was that yes, everything is on a per user basis except for the deal with British Telecom which aspects were structured as an upfront deal.

Now why, one month later, after receiving this answer, does a report like this come out? I mean, is it more timely 30 days later? Would it have not been more proper following the earnings? Hmmmm, maybe it is timed after all the clutter of analysis following the earnings conference call so that it can stand out and garner more publicicity?

I don't know but I am a very big fan of analyst law suits, particularly where conflict of interest is shown. I think what may be happening now is over sensititivity to the issue so they pretty much just bash anything and look for that cloud in every silver lining. I mean, as I mentioned in my last post, this stock can cut its forward earning guidance in half and still trade at a PEG of .5 given consensus 5 yr growth estimates.

Oh well, I guess it is evidence of irrational pessimism and yes, this thing can get much uglier. If we have another gas price shock all bets are off.

Tinker
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No. of Recommendations: 1
Tinker,

For a guy who is adamant about the uslessness of valuation ratios, you sure are enthusiastic about OPWV's PEG and PSR. :)

--Mike Buckley
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No. of Recommendations: 2
About that Gartner piece on application servers ...

Paul,

Not that I understand the details of the piece, but I think I understand Gartner's conclusions as they relate to product acoption. If Garter is right, their conclusions smack of the "false tornado" you refer to. If the customer is the most important part of the valuation chain (which I believe is the case), and if the customer is purchasing product it really doesn't need, eventually the customer is going to realize that it isn't in as much pain as thought or that there is a far easier and cheaper resolution to the pain. In either case, that's the sort of thing that isn't truly part of the whole product/strong value chain scenario neccessary to support a "real tornado."

Your thoughts?

--Mike Buckley
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No. of Recommendations: 1
For a guy who is adamant about the uslessness of valuation ratios, you sure are enthusiastic about OPWV's PEG and PSR

Cheap is cheap, especially when profitable and with substantial cash flow of a software company. But I never said these ratios were useless. They just are not as helpful in defining an intrinsic valuation for a stock.

Tinker
P.S.
I continue to listen to the analyst's and another aspect regarding "one-time" revenues came up. This time with KDDI. It seems that OPWV's software is deeply involved with KDDI of Japan's 3G roll-out and that OPWV was able to recognize the first segment of license fees from this contract.

So that is two data points that were in this Morgan Stanley report that were revealed blatantly in the conference call. In fact detailed explanations were given as to why the KDDI contract is structured the way it is. Yet, for some reason, it took this analyst a month to deliver his report?

Please, this is not about reporting on the stock as all this information was available a month ago.
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No. of Recommendations: 0
Mike,

This is my take - Gartner doesn't sell a lot of research to the appserver vendors.

Seriously, all they are saying is that a 2-tier appserver deployment architecture makes economic sense. Why pay for Oracle when SQLserver will do?

I think this makes some sense. However, the two-tier architecture is more complex than the single centralized tier. I think most large companies would want a single vendor to supply the software for both tiers. Too many headaches otherwise.

Paul
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No. of Recommendations: 4
I also posted this message on the BEAS board.....

I think this comes accross as typical Gartner Group pontification, and to some degree calls the IT Managers idiots for buying more than they need. "In many cases they simply follow the vendors advice" Most IT Managers know damn well what they are buying, even if some of them are not too bright. The "patterns" they mention for overbuying, mainly insurance and standardization are very valid reasons.

Consider the opposite scenario: Mr. IT Manager designs and builds an application that can't handle the user load, and can't be modified down the road to handle EJB or some other higher end functions. Guess what happens then? Mr. IT Manager might might lose his job! You must also consider the fact that the App Server is a very small percentage of an entire application project when you consider all the other hardware and developer costs. Ask any IT Manager, and they will tell you it is only practical to overbuild an application because you don't know what the future holds.

Secondly, standardization on a single J2EE (or any software or hardare platform) is a key part of most enterprise architecture plans, primarily to reduce costs through QPA's, minimize support, and maximize developer experience.
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