To get a handle on this stock It would be useful to get an idea of what their competitive position is in each of their four segments and what the prospects for these segments are.
1) Emblaze Semiconductors
2) Emblaze Mobile
3) Emblaze Systems
4) Orca Interactive
1) Emblaze Semiconducors
I'm sure there are a host of companies competing to have the leading semiconductor chip for mobile phones. Emblaze's chip is sold, by Emblaze, as enabling video messenging and 3G etc. However, surely ARM have developed a capability in this area i.e. as I understand ARM built their business on the design of low power chips for mobile phones. I find it hard to believe, therefore, that Emblaze is a 'market leader' in this segment. On the positive side their chip has been selected for 'one of the largest brand-name mobile phone makers in China and Taiwan.' The company also states that 'in 2004, at least 10 multimedia phones should be launched using Emblaze Semi's ER 4521 series microprocessor.' This includes China's largest cell phone manufacturer.
The question remains though why Chinese manufacturers and not Western have choosen Emblaze's Chip.
2) Emblaze Mobile
In this division Emblaze designs and manufacturers, as I understand, complete phones. In my view this is a waste of money as it will always be outdone by the likes of SonyErricson, Samsung, Nokia etc... Just looking at the model of phone they have in their report it seems miles behind phones currently on offer in stores.
This is also based on the premise that operators will want to have control of the handset:
'Until recently operators had little control over design and function of their handsets. Emblaze mobile offers such customisation, allowing operators to distinguish their brand, extend their services and increase their average revenue per user'.
In my view this analysis in Emblaze's 2003 accounts is simply wrong and based on an incorrect business model. Operators, such as Vodafone, have no choice but to offer all handsets by the likes of Sony etc..as otherwise customers would go elsewhere. If they started customising handsets it would prove a distraction and create a conflict of interest over whether they promote their own handsets or those of other companies.
3) Emblaze Systems
This division appears to be relatively successful. The report states that: 'today approximately half the world's multimedia messaging services (MMS) have the E-sys EMcodre in them, bringing us significant royalties.'
Perhaps then this is the division Emblaze should concentrate on rather than trying to make mobile phones.
What this division does according to the annual report is:
'create, manage and deliver rich media services including managing sub contractors, integration to operators' environments and optimisation to networks....
Emblaze Systems (E-Sys) provides the frontline solution and the bank end systems to empower movile operators to deliver rich medai services.'
In essence, therefore, the division outsources the technological requirements of making MMS and rich media available to the operators such as Vodafone.
However, this is geared towards an uptake of rich media and investment by the operators. These may come eventually but the delays so far have been significant.
It isn't also clear what kind of a sustainable competitive position Emblaze has. Anyone know who is the next largest competitor. Furthermore, handset manufacturers may move in on this space.
To summarise, divisions 1, 2 and 3 provide, according to the annual report:
'a holistic strategy for the telecom...industry'...'The group compelted its range of end-to-end solutions with Emblazre Mobile's advanced multimedia handsets, powered by Emblaze Semiconductor's chip and backed by Emblaze Systems servers. It can now approach carriers with a complete handset and infrastructure package.'
Interesting but do carriers want or need a compelete handset and infrastructure package. The answer is probably no. They will instead cherry pick the best and won't get involved in the phones themselves leaving only Emblaze systems to develop revenue from the operators and Emblaze Semiconductor to get revenue from the phone manufacturers.
All in all a company that isn't focused and is deluding itself i.e. more interested in technology then commercialisation and more successful at the former than the latter.
4) On the last division Orca Interactive. I can't even figure out what it does and don't want to as it is too depressing to see such a lack of focus by Emblaze. I doubt they are the best in this field or that they will make money...
Any views out there... on this analysis..
Finally, we are told that rich messenging i.e. 3G and MMS is on its way now and this will see an increase in demand for Emblaze's products. That has to be the major bull point. However, I only see Emblaze systems as having a reasonable competitive position and maybe Emblaze semi (which I doubt). So I think the firm will continue its long history of disappointing invetors.
Also don't like the 2003 annual report in style or from what it says about the management.
This may well be a company that will be taken over or is heading for permanent decline, with the possibility of a temporary improvement as rich messaging kicks in...But very interested in alternative views
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