Why Raptor Network Technology is a Risk Worth Taking

Raptor Network Technology Inc (RPTN.OB) designs, produces and markets proprietary high speed network switches for high bandwidth applications such as video and Internet Protocol telephony (think about a simple telephone switch that connects your call to Aunt Nelly, then expand it to instantaneous video, data and voice connections globally). The company’s patent protected technology revolutionizes the network switching industry just as the personal computer changed the computer network industry--it replaces the extremely complex, very expensive, inflexible core switches with numerous geographically dispersed switches that are faster, cheaper and more efficient.

Raptor’s key product addresses the 10 Gigabit Ethernet Switch market, which will have sales of approximately $1.8 billion in 2007 and is estimated by industry experts to be growing at a 38% annual rate. Further, its technology has been validated by such blue chip customers and partners as Nortel (NT), General Dynamics (GD), Lockheed Martin (LMT), University of Southern California, Massachusetts Institute of Technology, LA Care and Optical Entertainment Networks; that process includes completing certification testing by the Defense Information Systems Agency.

The advantages of RPTN’s switches are that they:

are 2-3 times cheaper than current products available to build out or upgrade legacy networks,

transport data across any network including those encompassing significant geographic dispersion 10-100 times faster than the current core switching configurations,

eliminate the transmission delays characteristic of high band width applications (e.g. the delays experienced in very long distance telephone calls; the ‘buffering’ that occurs during video downloads on the Internet),

improve the network’s redundancy--all Raptor switches must fail to the bring the network down versus only the core switch in a legacy system,

are fully compatible with existing network products--they can be simply added on to improve capacity and/or efficiency; nothing needs to be scraped,

eliminate the threat of hacking into the network between switches,

utilizes 1/5th the power of traditional alternatives.

Despite the progress the company has made technologically, the financial risks are extraordinary. RPTN was originally funded by private investors versus (more well heeled) venture capital sources and continued its funding through two private investment in a public entity [PIPE]. It has yet to receive conventional institutional funding. At present, annual revenues are less than $1 million and operating losses are substantial. The company believes that given the market’s reception of its product, its clear technological and economical superiority that it will soon achieve dramatic revenue and earnings growth.

However, this is the earliest stage 10 Bagger on which we have written or made a bet. As such it is the riskiest and should be treated accordingly. It is only for those investors with the highest risk tolerance and even then any position should be small relative to a normal sized holding.

Disclosure: Author has a long position in RPTN.OB

RPTN 1-yr chart

Comments

[DHutchinson:]

I am long Raptor as well, however I am very perplexed why they have lacked the ability to get traction from a sales perspective. Everybody agrees the technology is superior and more economically efficient I just don't understand management's lack of ability garner new contracts.

2007 Jul 18 11:31 AM

[sshalita:]

Interesting perspective. To be clear - I have nothing against Raptor Networks. I actually was set-off by price comment. Actually the LAN space is around $13-14 Billion. In this space it is about credibility, completeness of portfolio (end-to-end), incremental capabilities, but most certainly it is not "PRICE". Price is not the ultimate differentiation point in the LAN market. Frankly, anytime you see a vendor that leverages a low-price (or cheaper than Cisco) strategy, history has shown that they will not be successful. And when you are looking at the 10 GbE market, you are talking about consumption being from mostly the top end user companies. Those companies are probably the "least likely to buy" from a unknown vendor such as Raptor.

2007 Jul 20 01:46 AM

[sshalita:]

Interesting perspective. To be clear - I have nothing against Raptor Networks. I actually was set-off by the following comment:

>>are 2-3 times cheaper than current products available to build out or upgrade legacy networks

2007 Jul 20 01:39 AM

[PJoseph:]

I cann't understand why the management is having a difficult time to make a sale. If you are that good why cann't you convince potential buyers. I have been long for 3 years. I wish someone can help me with this struggle. May be the management needs to find new and better sales people for this product to sell.
Any comment welcome.

Jul 23 11:45 AM

[PJoseph:]

It is no longer worth taking risk.

Jul 24 10:31 AM