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Note From Edward Hemmelgarn

Since you received our last quarterly newsletter, Shaker Investments has moved from its previous 5,000 square foot office to a new 15,000 square-foot facility several miles away.

While we continue to believe in the merits of a lean, horizontal organization, our significant growth in client assets in the past year has prompted us to augment our client relationship team and operations staff. This has the double benefit of providing our clients with higher levels of service, and enabling myself and David Webb to focus almost solely on research and day-to-day portfolio management, where we can add the most value.

Another key purpose served by our new office is that we can continue to expand Shaker Investments’ analyst group. Our investment process is driven to a great extent by an uncompromising focus on intensive, in-depth research. It is crucial to ensure that today’s research staff has the "bench strength" to identify tomorrow’s most intriguing investment opportunities.

Visitors to our new office have been especially impressed by our trading room, which enables us to gather a core group of portfolio managers, analysts and traders in one centrally located space. This physical proximity creates a unique dynamic where market opportunities and events can be identified, evaluated and quickly acted upon by the team.

Visitors also have commented favorably on how we have deployed technology throughout the entire facility to support both investment management and client service. We hope that you will have an opportunity to visit us soon. This office represents who we are, and we are eager to share that vision with you.

Analyst’s View

Next Generation Voice Technology
Harish Aiyar, Ph.D.

Next generation voice technology is telecommunications industry jargon for new communication platforms that enable voice traffic to be carried in one pipeline alongside data, efficiently and economically.

Current legacy platforms direct voice and data traffic onto separate networks. Voice traffic uses a circuit-switched network where a connection is dedicated for each "call" – there is an actual path between the calling party and the called party. Once a call is initiated, that line carries only traffic relating to that single call. When there is silence on the call, whether it be between words in a conversation or when neither party is talking, the line is essentially wasted (0% efficient).

Data traffic uses a packet-switched network where pieces of information are sent in "packets." A single piece of information is broken up at the transmission point and reassembled at the destination. The route each packet follows to reach the destination is of no consequence. As a result, multiple "calls" (or packets of multiple calls) can travel through the same pipeline (100% efficient).

Next generation voice technology seeks to create a single, integrated network, rather than rely upon separate circuit-switched and packet-switched networks. There is a rapidly growing need for the industry to attain a higher degree of efficiency in the management of "voice" and "data" transmission. Since the advent of the Internet and a more sophisticated generation of wireless communication, data traffic has grown exponentially compared to traditional voice traffic. Industry analysts project that data transmission will grow well over 100% per year for the next four to five years, while voice traffic will remain comparatively flat.

Telephone carriers are faced with the predicament of keeping up to speed with this change, while searching for viable next generation tools to solve their "traffic management" problems. RHK predicts that the next generation voice infrastructure market will grow to $2.3 billion by 2003. To date however, quality of service issues and the evolving technology have limited the growth of the next generation market to about $70 to $80 million a year. Large carriers are taking a judicious approach in risking their stable architecture for a nascent technology that has not yet been fully proven. The major providers continue to concentrate their core efforts on improving and maximizing the capacity of their well-established legacy networks.

Currently, only a handful of prominent names like Lucent, Nortel, Cisco and Alcatel have shown significant interest in this market, while smaller entities like Tekelec Convergent Networks and Sonus Networks have just arrived. As in any other sector, future partnerships and strategic mergers among entities with different degrees of financial resources and niche market know-how may help to accelerate the growth and expansion of this industry.

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