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I was hoping this tech-heavy board would know a good direction to point me in for researching or for message boards regarding a new IPO today called InSilicon (INSN) which is involved with the Semiconductor industry. I know this industry has been on fire, and I would like to add some smaller cap, speculative semiconductor stocks to my portfolio, in the hopes of getting in near the bottom of perhaps the next big semiconductor play.

I found the "Semiconductors" board, here, at TMF, but it does not seem to have very regular traffic.


Please do not ignore me.

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No. of Recommendations: 7
Hey IgnoredFoolYap, maybe everyone ignores you because you're a damn fool. You should change your name to GeniousStockPicker, then maybe you'd get some respect. Anyway there is a great board for InSilicon INSN at (ragingbull is usually the best place to go for new and pre ipo companies but once it goes public a Yahoo board will be set up, which in this case should be soon). As for your question about ELON, here is a report written about echelon from a different board.

Posted 3/15/00
Author: janet_wij

Echelon Corporation (ELON) Project Hunt Report

1. Company Overview

Echelon Corporation develops, markets and supports a family of hardware and software products and services that enables original equipment manufacturers (“OEMs”) and systems integrators to design and implement open, interoperable, distributed control networks. The company offers its products and services to OEMs and systems integrators in the building, industrial, transportation, home and other automation markets. The company provides a variety of technical training courses related to its products and underlying technology as well as customer support to its customers on a per incident or annual contract basis.

The Company derives its revenues primarily from the sale and licensing of its products and, to a lesser extent, from fees associated with training and technical support offered to its customers. Product revenues consist of revenues from sales of transceivers, control modules, routers, network interface devices and development tools and from licenses for network services software products. Revenues from software licensing arrangements have not been significant to date. Service revenues consist of product support (including software post-contract support services) and training. The Company recognizes revenue from product sales at the time of shipment to the customer.

2. Revenues

Total revenues grew to $9.8 million in the third quarter of 1999 from $7.1 million in the third quarter of 1998. Total revenues for the nine months ended September 30, 1999 grew to $28.4 million from $23.6 million in the same period in 1998. One customer, EBV, the sole independent distributor of the Company's products in Europe since December 1997, accounted for 29.0% and 23.7% of total revenues for the quarters ended September 30, 1999 and 1998, respectively, and 27.5% and 22.5% of total revenues for the nine months ended September 30, 1999 and 1998, respectively.

Product. Product revenues grew to $9.3 million in the third quarter of 1999 from $6.4 million in the third quarter of 1998. Product revenues for the nine months ended September 30, 1999 grew to $26.7 million from $21.3 million in the same period of 1998. The 45.2% increase in product revenues between the two quarters and the 25.4% increase in product revenues between the two nine-month periods were primarily a result of an increase in sales of control and connectivity products, and to a lesser extent, an increase in sales of LonPoint products and network services products, partially offset by the decrease in sales for development tools products.
Service. Service revenues decreased to $473,000 in the third quarter of 1999 from $717,000 in the third quarter of 1998. Service revenues for the nine months ended September 30, 1999 decreased to $1.7 million from $2.4 million in the same period of 1998. The 34.0% decrease in service revenues between the two quarters and the 28.0% decrease between the two nine-month periods were primarily due to reduced customer support revenues partially offset by a slight increase in training revenue.

12-month sales growth as of:

Dec. '98 13.8%
Mar '99 14.8%
June '99 13.0%
Sept '99 18.7%
Dec '99 23.5%

Gross margins have grown over the last 8 quarters and in Sept. '99 stood at 60.5%.

3. Neuron Chips & Dependence on Key Manufacturers

The Neuron Chip is an important component used by the Company's customers in control network nodes. In addition, the Neuron Chip is an important device used in many of the Company's products. Neuron Chips are currently manufactured and distributed by both Motorola, Inc. ("Motorola") and Toshiba Corporation ("Toshiba"). The Company has entered into licensing agreements with each of Motorola, Toshiba and Cypress Semiconductor Corporation ("Cypress"). The agreements, among other things, grant Motorola, Toshiba and Cypress the worldwide right to manufacture and distribute Neuron Chips using technology licensed from the Company and require the Company to provide support and unspecified updates to the licensed technology over the terms of the agreements. The Cypress agreement expires in April 2009, unless renewed. The Toshiba agreement expires in January 2001, unless renewed. The Motorola agreement expires in January 2001, and Motorola has announced that it will discontinue distribution of Neuron Chips after January 31, 2001.

4. Market Acceptance of Interoperability
The future operating success of the Company will depend, in significant part, on the successful development of interoperable products by the Company and OEMs, and the acceptance of interoperable products by systems integrators and end-users. When products or subsystems from multiple vendors can be integrated into a control system without the need to develop custom hardware or software, they are "interoperable." The Company has expended considerable resources to develop, market and sell interoperable products, and has made such products a cornerstone of its sales and marketing strategy. The Company has widely promoted interoperable products as offering benefits such as lower life-cycle costs and improved flexibility to owners and users of control networks.

5. G/K Characteristics

A. Is there a discontinuous innovation or a proprietary open architecture?

Yes. LonWorks is a discontinuous innovation whose technology is open and proprietary. The most dramatic market successes are (or began as) open, proprietary technologies. Their proprietary nature offers an economic rationale for their existence, and their open availability makes them accessible to all, with no advantage accruing to any particular user. Examples include DOS Windows, Unix, Ethernet. LonWorks is an open technology. Its enabling component (the Neuron chip) is manufactured and sold worldwide by two competing semiconductor giants, Motorola (now Cypress) and Toshiba.

What does the technology encompass?
This is perhaps the least understood (and appreciated!) aspect of the LonWorks story. Many who are only casually familiar with the technology tend to view it with a very narrow perspective: perhaps that of a protocol definition or a power line communication transceiver, or a specialized chip for control systems, or whatever. Such constrained views miss the whole point of the technology, and certainly the principal reason for its success in the marketplace. For it is all of these things, and much, much more.
Designing, constructing, installing, and maintaining a control network requires attention to a great many issues, including: an appropriate communication protocol, physical layer transceivers for the selected medium (or media, in many cases), capable microprocessors for both application and protocol execution, device controller hardware & software for the required sensors and actuators, timing hardware, RAM and ROM storage, non-volatile parameter storage (such as EEPROM), an appropriate programming language model & a compiler/debugger for same, run-time libraries, a real-time distributed operating system, an interoperability solution, physical node identification (for installation, tracking, etc.), network management software, on-line diagnostics, protocol analyzer, host application program interfaces, installation and configuration tools, etc., etc.
LonWorks technology offers a ready-made, highly integrated solution to *all* of the above concerns, much of it in the form of a single, low-cost silicon component from two of the world's largest semiconductor companies. Available today. On the chip. Off the shelf.

How extensive is the LonTalk protocol?
Protocols today are generally designed around--and described by--the ISO standard "Open Systems Interconnection Reference Model", which encompasses a full set of protocol features, and classifies them according to seven functional categories (referred to as "layers"). Thus the "seven layer OSI model".
The LonTalk protocol implements the entire seven layers of the OSI model, and does so using a mixture of hardware and firmware on a silicon chip, thus precluding any possibility of accidental (or intentional!) modification. Included are not only such expected features as media access, transaction acknowledgment, and peer-to-peer communication, but also more advanced services such as sender authentication, priority transmissions, duplicate message detection, collision avoidance, automatic retries, mixed data rates, client-server support, foreign frame transmission, data type standardization and identification, unicast/multicast/broadcast addressing, mixed media support, and error detection & recovery. For an overview of the LonTalk design, and the benefits of fully functional protocols, refer to "LonTalk Protocol Rationale", available from Echelon Corporation. The full LonTalk Protocol Specification is also available; due to its size, a charge of $50 applies.

How is LonTalk an Open Protocol?
The market for control networking has only recently evolved from one of early adopters and experimenters to maturity. Everyday, developers are finding more uses for the protocol, yet at the same time are inventing uses never envisioned by the people that developed the dedicated silicon upon which all current LonWorks networks are based, the Neuron Chip. Therefore, Echelon has opened up the LonTalk protocol to allow any company to port it to the processor of their choice. This means that applications requiring 16 or 32 bit processing power, can now host the protocol in native mode and eliminate the need for a microprocessor interface program.
The protocol is also currently in committee review by the Electronics Industry Association for possible recommendation as a standard for home automation. Additionally, the protocol is part of the American Society of Heating, Refrigeration, and Air-Conditioning Engineers' BACnet control standard for buildings. This is now known as ANSI/ASHRAE 135-1995.
Although it is possible to implement the LonTalk protocol on a generic processor architecture, a silicon realization (i.e., the Neuron chip) is the best approach for most control applications. This is for several reasons:
? The Neuron is actually 3 8-bit inline processors in one. Two are optimized for executing the protocol, leaving the third for the node's application. This ensures that the complexity of the application does not negatively impact network responsiveness and vice versa.
? Use of the Neuron chip guarantees an appropriate hardware execution environment for the protocol. If there is a downside to a full-featured, seven-layer control protocol, it is the need for ample computational power to execute it. The protocol is thus implemented with a mixture of hardware and firmware (the instructional set of the Neuron processors was designed specifically to execute the LonTalk protocol, allowing the firmware portion to occupy a mere 8K bytes of on-chip ROM).
? The creation of a custom silicon device also allows the inclusion of additional functionality to facilitate control node design. The Neuron chip, for example, incorporates watchdog timers, on-board diagnostics, 35 device controller types, a distributed real-time operating system, run-time libraries, three types of memory, and even a 48-bit software-accessible serial number (which, guaranteed by the chip's manufacturers to be unique, provides an always-available installation address for any Neuron chip-based node).

In summary, LonWorks technology is a commodity solution to the many problems of designing, building, installing and maintaining control networks, of all sizes, in all industries. The Neuron chip is the enabling technology for, and the core component of, each and every LonWorks node.

Jack Hicken, editorial director of Instrumentation & Control Systems, wrote, “My gut feeling is that LonWorks will do for control networks what the microprocessor did for computers.” (My emphasis) Like the microprocessor, LonWorks technology exploits the very high volume production of a highly generic and massively integrated solution. (FAQS)

The principal suppliers of LonWorks technology are Echelon Corporation, (creator of the technology, and provider of transceivers, connectivity products, development tools, and training), Motorola (until January 1, 2001), Toshiba and Cypress Semiconductor (Neuron chips) (from FAQ)

Over 2000 corporations use LonWorks technology today, and their numbers are growing rapidly. Because many of them view their use of the technology as strategic, they are averse to any public reference.

B. Is there a Discontinuous Innovation?

Yes. In the building controls industry, two enabling technologies have converged, the Internet and LonWorks. LonWorks Network Services (LNS) seamlessly ties these technologies together. LNS is an Internet ready, out of box solution, with no need for custom engineering where it is possible to install, configure, monitor and control a system all on LNS. LNS is a real, open, multi-vendor and multi-product solution that enables a system to.

1. Speak peer to peer, a node from manufacturer A can speak to a node from manufacturer B.
2. Possible to use a common tool to configure.
3. Can substitute a node from manufacturer A to manufacturer B.

This integration allows a single user interface, lower failure, competitive prices, easier and faster specification and design and very, very low technology risk.

C. Does it have the potential to grow into a mass-market phenomenon, become a standard?

Yes. There have been myriad examples of Echelon wins cited on this thread, including the adoption of LonWorks as an ANSI standard, and the production of the iLON server. I will concentrate on the building controls industry and the comparative adoption of BACnet and Echelon as standards, and how Echelon is winning market share in this space.

BACnet is a committee-created ASHRAE standard, and has been described as a framework for an open system. Their stated purpose is “to define data communications protocols for monitoring and control.” There is a 501-page book of BACnet specifications; however, since every engineer designs systems differently interpretation becomes problematic. According to an Echelon claim, “You don't see a lot of BACnet product,” because of conformance procedures.

They contrast the number of control nodes installed that are accessible through the two different protocols:

Echelon LNS=Millions

The real test then becomes the degree to which these two protocols provide interoperability. LONMARK took a different path to insure seamless interoperability. Members of the LonWorks Interoperability Association decided on technology with the neuron chip embedded, and where the Lonsoft protocol is an open, published device specification which has become a de facto standard supported by shipping real products.

D. Are there high barriers to entry and high switching costs?

Yes to both. Echelon has created what seems like insuperable barriers to entry. A company would first have to create a competing discontinuous innovation. Then they'd need to work at getting the buy-in from the disparate group of manufacturers who make up Echelon's value chain. Something Echelon has been working on for the past ten years. Echelon has a robust trade group in the LONMARK Interoperability Association. According to a pdf document on Echelon's site entitled “The Open Control Technology Standard for Buildings,” there are:

? Over 3,500 OEMS with Development Tools designing products with LonWorks
? Over 1,400+ products now available—commercial, residential, industrial
? Millions of nodes installed
? Over 240 members in LONMARK Interoperability Association
? Vendors representing 57% Share of the Buildings Control Systems Market at ASHRAE '99 with shipping products

E. Have value chains developed?

Echelon's LONMARK sponsor members pay user fees to carry its logo, and they are a veritable who's who in the controls industry. Some of these LONMARK sponsor members are Carrier, Honeywell, Johnson Controls, and SIEBE, thus enabling Echelon to leverage its standards. I would say a gold-plated value chain has developed in the building control industry. As an aside, the relationships they have developed across industry lines and with competitors within various industries would seem to preclude a takeover. Echelon is the arms merchant to all, but does not compete in the core businesses of most of its LONMARKS sponsors and partners.

F. Have they crossed the chasm?

Yes, and the head pin is building automation. In addition to the 57% of non-residential building controls companies shipping Echelon enabled products, they also claim 240 LONMARK Interoperability Association members from 17 Countries, or 82% of the building controls market.

G. Existence of Hypergrowth?

From December 5, 1990 to December 31, 1998, shipped 6.95 million nodes.
From December 1998 to June 1999 shipped 1.5 million nodes.

In the words of the gentlemen (who did not introduce himself by name) presenting on the video, “That's the kind of growth you see in a platform that's beginning to catch fire.” Sounds to me he's talking about hypergrowth, however, if we use as our measure Ken Oshman's goal of billions of neuron chips we're not there yet. But the growth over the past year may be characterized as micro-hypergrowth. They shipped those 6.95 million nodes over an eight-year period, and were on track to ship 3 million in 1999. Allowing for a modest ramp up in shipments they could achieve 100% year-over-year growth in shipments. Also, their iLon server began shipping this quarter. How that will impact revenue will be telling, since they state in their 10Q that “the company recognizes revenue from product at the time of shipment to the customers.” 100%+year-over-year revenue growth is quite likely.

6. Summary and Analysis

Echelon has crossed the chasm as defined in the RFM at page 29: “The chasm is a hiatus in market development during which there is no natural customer for the discontinuous innovation.” Decidedly, Echelon has plenty customers.

Echelon has knocked down the building automation pin in the bowling alley, and they have the “capability to support a new value chain's formation…” (p33 RFM) What we are witnessing with Echelon is a new marketplace coming into being. Also at page 33 of the RFM: “The bowling alley stage is thus the earliest moment that a high-tech company can truly define itself as a going concern, because for the first time it has committed customers and a protected marketplace to support it in the years to come….” And for us Gorilla Gamers, “it is also the earliest investable moment in the gorilla game.”

Home networking is another story. Here, Echelon is currently crossing the chasm, and, of necessity, slowly I might add. Their progress here is absolutely dependent upon, and must await, permanent always-on broadband connections into the home. The most recent statistics show 1.9 million households having broadband access as of 1999. The Strategis Group forecasts more than 25 million high-speed households by 2004. As broadband rolls out, Echelon is optimally situated with products and partners to capitalize on home networking. According to the RFM “each new niche creates a moment of micro-hypergrowth…. The reason niche markets are called the 'bowling alley' is that ongoing market growth will be niche to niche, each entry into a new niche being eased by leveraging the prior niche's solution set and reference base of customers….”

Echelon is poised to play a significant role in the home networking arena. Their iLON server which currently sells for $1200 is expected to be sold in future at price points acceptable to consumers on Main Street. Meanwhile, witness Echelon's ties to manufacturers of consumer electronics, white goods, home lighting and security for the home. They are well positioned. It is still early in this game, and I expect their home networking growth will mirror the explosive growth of broadband. Howardroark in a posting on the Motley Fool board reported that Echelon expects volume product shipments by 2001 in the home networking market, and that Ken Oshman feels “pretty good” about LonWorks becoming the leading standard for home networking. In the meantime, manufacturers are already making and shipping LonWorks enabled appliances.

My conclusion: Echelon has already crossed the chasm in building automation, and I'm awaiting tornado formation in the near term. This part of their business is in “micro-hypergrowth” as defined by the RFM. Echelon is not yet a gorilla, but on the strength of the building automation market alone, I would say this company is a “YPGWA,” young potential gorilla with attitude, whose near-term execution and earnings must be closely monitored for any signs of tornado-like activity. Analysts are expecting profitability in Q2. Echelon bears very close watching.

Disclosure: I am long this stock.

7. References Echelon's home page Echelon Lonworks page SEC 10-Q Open Control Tech Standards for Bldgs.ässor

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I may be an ignored fool & damn fool...but at least I can spell "genius." :)

Thanks for the great ELON link and help with the INSN question.

I have heard bad things about, though. I was told that hardly any info can be trusted, so I guess I will wait for Yahoo to start something, or maybe here at TMF.

By the way, here is a link that I just found that may be promising for research and/or news, but it did not have two recent IPOs on it, but I guess I can not hold that too much against them.

I still would appreciate anyway addressing the ELON price appreciation for year-to-date.

Thanks, and please do not ignore me

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