When will the investors in Transwitch (TXCC) decide that Dr. Santanu Das (Dr. Das around here, we like the way it sounds) needs to go?
… As we move into our next series of Envoy, PHAST, and EtherMap products with 10 Gigabit SONET/SDH and Ethernet interfaces, we need to continue to integrate SerDes and PHY functions. External IP for 10 Gigabit SerDes and PHY is not readily available, and Mysticom’s proven capability in analog/mixed-signal design and in these technologies will enable TranSwitch to continue it strategy of integrating SerDes and PHY capabilities in its next-generation products
If this really an IP acquisition then why are there positive cash-flow targets for the group? From the release…
TranSwitch is expected to acquire the Israel-based company through the issuance of approximately $5 million of TranSwitch Common Stock. Upon the satisfactory achievement of certain revenue objectives and a positive operating cash flow over the next 12 months, TranSwitch will pay up to an additional $10 million in the form of TranSwitch stock or cash, at its option.
This implies that Mysticom is not cash flow positive today. The design cycle for these products is twelve months, which means whatever Mysticom needs to execute on to hit these targets should have already happened. These devices are used in 10GE modules, a market where 75% of the volume is with Cisco, and Cisco makes the decision about whose chip gets used in the module. We are betting that Mysticom was not at the top of their list.
Over the last three years Dr. Das has managed to liquidate $80MM shareholder equity by pursuing me-too products in me-too markets. This included forays into Circuit Emulation, a big one into Ethernet over SONET/SDH, DSLAMs, Carrier Ethernet switching- and let’s not forget the high performance private equity investments they made in companies like Onex. Customer feedback indicates that execution has not been on par with their competitors. We are ‘mystified’ by the patience and tolerance investors seem to have for Dr. Das’s leadership.
What is truly remarkable is that after years of unprofitable performance and total annihilation of shareholder equity, the company is still valued at around 6x revenue. Who wakes up in the morning and says- I’m going to add more Transwitch to my portfolio today!