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November 09, 2009
The Role of Business Planning
Please note that contributed articles, blog entries, and comments posted on EDACafe.com are the views and opinion of the author and do not necessarily represent the views and opinions of the management and staff of Internet Business Systems and its subsidiary web-sites.
Russ Henke - Contributing Editor


by Russ Henke - Contributing Editor
Posted anew every four weeks or so, the EDA WEEKLY delivers to its readers information concerning the latest happenings in the EDA industry, covering vendors, products, finances and new developments. Frequently, feature articles on selected public or private EDA companies are presented. Brought to you by EDACafe.com. If we miss a story or subject that you feel deserves to be included, or you just want to suggest a future topic, please contact us! Questions? Feedback? Click here. Thank you!


Introduction:

First a little background. I have spent the last 40 years of my professional career in high tech middle- and executive-management. Such a career was highly-improbable at the beginning. I grew up in a working-class family in Ohio. No family member before me had even considered college; even then, the tuition alone was far beyond our budgets. Inspired by Sputnik and by JFK’s call to land a man on the Moon by the end of the 60’s, I was fortunate to parlay a facility in high school math & science into some college scholarships. Combined with the work-study program of the University of Cincinnati co-op program, I was able to study mechanical engineering all the way to the PhD level.

During those years, I was presumably headed for a purely-technical career designing machine tools. But along the way, two key things had occurred. First, I took a company-sponsored course on Professional Management, which defined a manager as having 5 major roles: planning, leading, organizing, controlling (financially), and staffing. Secondly, at the tender age of 22, I began working directly for an unusual high tech manager who expanded the roles of his subordinates well beyond a purely-technical focus. While he certainly preached (1) Technical Excellence, he simultaneously emphasized (2) Business Excellence and (3) People Orientation (making sure all your people understood & participated in the business and prospered). Since I always seemed to end up in some sort of leadership role in any group I was part of, even in high school, I decided I should at least explore the potential of a management career, emphasizing the three attributes of the mantra listed above.

I was lucky to work with this “unusual manager” for the next 19 years, advancing steadily through the management ranks to become president of the company. The ability to install formal and rigorous business planning processes with wide-participation of the company personnel was critical to that success. I have fostered these principles ever since.

Fast-forward to the present day:

The worldwide economic recession (including the US recession that officially began in December 2007) has had devastating impacts on most existing economies, companies and people. Venture Capital has been hard to find. Millions of layoffs have occurred. Housing, construction, manufacturing … indeed, most economic sectors … have been hard hit.

The EDA Industry, not exactly thriving prior to the downturn, has suffered further during the last 23 months. Semiconductor revenues have been well below previous highs; for example, semiconductor sales in August 2009 declined 16.1% from August 2008, when sales were $22.7 billion. Most EDA vendor revenues have been flat or declining, and, with certain rare exceptions, profitability has been miserable (see, for example, Tables 2 & 3 in the September 2009 EDA Commentary http://www10.edacafe.com/nbc/articles/view_article.php?articleid=735105).

Public EDA suppliers have also endured large declines in their equity valuations. Such reductions often constrain acquisitions, which have been for years the lifeblood of Big 3 EDA vendor growth and innovation and the preferred exit strategy for many EDA start-ups.

During these tough times, especially careful and effective advance product, process, and overall business planning become necessities.

Happily, there are signs now that the US recession may have bottomed out. Indeed, the US Commerce Department reported on October 29, 2009 that the country’s GDP increased in Q3 2009 some 3.5%. This rebound ended the record streak of four straight quarters of contracting US economic activity.




Stocks in general have surged about 50% since their March 2009 lows. Venture capital investments in the San Francisco Bay Area in Q3 2009 ticked up for a second straight quarter, per an October 20, 2009 report from the National Venture Capital Association.

On November 2, 2009, the US Commerce Department reported "that orders to US factories rose 0.9% in September 2009, better than the gain economists had expected. Demand increased for both durable goods, and non-durable goods, helped by strength in autos, heavy machinery and military aircraft." The fifth increase in six months spurred "hopes that a revival in manufacturing will help support an overall economic recovery.”

In October 2009, the Semiconductor Industry Association (SIA) had reported that the worldwide sales of semiconductors in August 2009 of $19.1 billion was in fact an increase of 5% from July 2009 when sales were $18.2 billion.

But we are still far from being out of the woods. While venture investment was up slightly in the Bay Area, across the USA venture capitalists plugged only $5.1 billion into 616 deals during Q3 2009, down 6% from the previous quarter, according to Dow Jones. The US Consumer Confidence Index released by The Conference Board sank unexpectedly to 47.7 in October 2009, falling for the second straight month as the assessment of present-day conditions fell to its lowest level in 26 years. As if to intensify the misfortune of many struggling citizens across the country, Wall Street firms continued to pay out huge bonuses for 2008 (and will again for 2009), even though some of the firms were (and are) still partially-owned by taxpayers via TARP bailout money.

Meanwhile, gas prices are rising again (since March 2, the value of the dollar has fallen 18% against the euro, and in that same period, a barrel of oil has doubled in price to around $80). Health care costs remain out of control, and wars continue in IRAQ and Afghanistan.

In fact, several economists go so far as to suggest that some of the recent uptick in US economic growth is just a temporary bounce off the bottom, and it’s not sustainable.

And even if the USA is fortunate enough to experience a sustained economic upturn, increased employment always lags, returning to pre-recession levels only after years in many cases. Despite the fact that President Obama's $787 billion stimulus plan has saved or created more than 1 million jobs, unemployment continues to rise (now 9.8% at press time across the USA with the US economy having lost 7.2 million jobs since the recession began in December 2007).

Unemployment is worse in California (12.2%). Moreover, if “under-employment” is considered, the California Employment Development Department estimates that the under-employment rate in California hit 21.9% in September 2009.




In recent years, consumer spending has represented some 70% of the US economy. So job creation depends greatly on the willingness of consumers to part with their limited funds. But on October 30, 2009, the US Commerce Department reported a 0.5% decline in consumer spending in September. It was the first drop in five months and the biggest since last December. With less money to spend, US consumers may not return to their heavy spending patterns for quite awhile, if ever, significantly impacting purchase of cell phones, smart phone devices, video games, personal computers, flat screen TV’s, and many of the other electronics products so vital to the health of semiconductor and EDA companies.

All of the aforementioned economic woes put an additional premium on effective advance corporate product, process, and overall business planning.

Business Planning is not universal:

As many readers know, some business managers and executives do not insist on formal business planning. There are many reasons for this that we’ll touch on in the sequel.

But there is at least one business activity for which producing an effective business plan is mandatory. This occurs when an entrepreneur wants to raise equity capital from an angel investor or a venture capital firm. This has been so, at least as long as this writer can remember. To confirm, just check out the web sites of any venture capital firm; you will find that submitting a business plan is the minimum price of entry. A business plan is necessary but of course not sufficient for your business idea to be actually considered for funding. For the latter to actually occur, an entrepreneur often must also possess one of the following attributes: (a) knows the angel or a partner of the VC firm already, or (b) can be introduced to the VC firm by someone who knows a partner already, or (c) has already had a previous well-known entrepreneurial success, etc.

Then, if an entrepreneur does score an initial meeting with a VC, the business plan must be compelling and powerful, and he or she must be able to make a great presentation, and then follow up tenaciously. There’s a lot more to the process, but suffice it to say, if you are not able to produce a powerful business plan, you cannot play in this league. It’s not for nothing that most business schools teach business planning and hold well-publicized contests for which student can produce and present the best business plan.

Of course, an entrepreneur does not necessarily have to raise angel or venture capital to start a new enterprise or to grow and existing privately-held company. He or she can use existing savings, or beg family and friends for cash, or max out several credit cards, or score a bank loan, etc., for start-up and/or operating capital, and then steadily grow the business from generated revenues. This self-funded approach works best when the entrepreneur has an invention or idea that is so unique and powerful, that customers beat a path to the entrepreneur’s door. Unfortunately, this circumstance rarely occurs.

If such an enterprise does survive and grows without an initial business plan to guide it, the firm sooner or later becomes dependent on the efficient cooperation of many workers and managers, who must pull together to keep the firm growing. There are some examples of successful firms that continue to grow significantly, just based on the sheer drive and leadership, personality and skill of the top executive or founder. But too often, such CEO skills are absent and a firm’s growth is eventually slowed or stopped (unless an effective business planning environment is finally generated).

This writer’s bias toward using a business planning process is based on his 28 years of corporate executive management experience and observations, in high tech MCAE, MCAD and EDA, plus more than thirteen years in high tech business consulting. These experiences and observations strongly suggest that an excellent, shared business plan and planning process are powerful, more universal substitutes for dependence on the rare qualities of a single individual, no matter how talented that person.

Alas, the fact remains that some businesses, even the occasional large ones, do not routinely execute business planning processes. Indeed, as recently as 2009, this writer spoke to a mid-level executive in one of the big three EDA vendor firms who said, “There’s no real business planning around here … our group is handed annual revenue and profit goals, and we simply scramble around trying to find the technology to achieve those goals.”

Nevertheless, most corporate managers "know" that a good business plan is important, either explicitly or at least viscerally. But it's often "inert knowledge"; that is, simply knowing it, and actually acting to create/follow a business plan, are often two different things. Then again there are managers who give business planning occasional lip service, but see it only as a necessary evil. Others fully embrace the idea, but either don’t have the experience in putting a plan in place with his/her staff, or don’t have the time to devote to the process to make the resulting business plan effective. Then of course there occur the situations where a company’s progress gets off track, and changes are needed in the business plan but the management is torn about how to implement a turnaround. In every one of these cases, following a proven “Planning Tool Kit (PTK)” can really help.

What’s in a “Planning Tool Kit” such as mentioned above?

There are dozens if not hundreds of references that a manager can access to learn about business planning, even if he or she did not have formal business planning courses in school, or was not lucky enough to have worked elsewhere for an executive who carried out business planning processes with his or her team. Alternatively, a manager can add a permanent planning guru to his or her staff, or hire an outside planning consultant to help implement the process.

The Planning Tool Kit mentioned above, is just one of many business planning guidebooks available today.

But rather than simply assert its value, please see actual excerpts from the currently-available Planning Tool Kit below.

First, the Table of Contents of the Planning Tool Kit (PTK) is as follows:




















 Here are copyrighted excerpts from the first two sections A. and B:


                   A. Preface & General Outline



This Special Edition of the Planning Tool Kit (PTK) was created and tailored by Henke Associates during the late summer of 2009.

The contents of this Planning Tool Kit leverage the business planning experiences of the writer and his associates over the past 13 years of business consulting for over forty high tech companies, plus the writer’s more than 28 years in general management positions in corporate America, as well as selected and proven management literature on business and market planning.

This Planning Tool Kit is meant for both aspiring managers as well as seasoned managers interested in improving or mastering the art and science of developing and writing marketing plans and related Business Plans for their design ideas, for establishing new groups within larger companies, or for creating a new enterprise. Participants in the planning process can gain knowledge of proven techniques for advancing fresh product & services ideas, for seeking in-house support from upper management, and/or for seeking outside financing for an entrepreneurial venture. Participants can improve individual and group skills in data gathering, hypothesizing, reviewing, synthesizing, strategizing, writing, editing, and decision making. The general focus here is on “high-tech” companies and products, but the techniques are versatile and can be adapted to other industries and markets.


Readers will benefit by learning the essential ingredients of an effective marketing plan and Business Plan, how to identify and offer attractive products and services, how to analyze possible internal and external competition, the value of building credible financial scenarios, and the importance of writing a powerful Executive Summary. This PTK enhances the reader’s ability either to create a plan, or to evaluate business and marketing plans of others.

General Comments:

With certain rare exceptions, such as an invention or design idea which is so simple and compelling that the market beats a path to one’s door, no concept can succeed (or succeed famously) without executing its justification and subsequent implementation pursuant to a good business plan.

The size and complexity of a business plan required to “market” your design ideas or enterprise, will depend on the complexity of your idea and whether you are pitching internally to upper management in your own company, or whether you’re seeking outside funding for an entrepreneurial venture.

Accordingly, some business plans can be abbreviated and relatively simple, whereas others need to be far more comprehensive. (In some cases, the recipient of your plan may specify in advance a certain desired format and information sequence; obviously, you should follow these specific directions. Regardless, the guidance you will get herein from this Planning Tool Kit will likely be applicable).

The current Planning Tool Kit will prepare you for both types of business plans – simple or comprehensive.

In either case – simple or comprehensive - a business plan will permit you the opportunity to clearly define aggressive goals and then think through in advance a sequence of events that will allow you, your group, or your company, to achieve those goals in an optimum manner. The planning effort itself may also reveal alternative paths to your goals; paths that may be better than your original notions.

The importance of the planning PROCESS is “to create a level of discomfort with the present” and “to stimulate change and improvement going forward”, all before your company and bosses, or the harsh business marketplace, demand more draconian actions. Simply “doing what you have always done” is a sure recipe for disaster.

Like many tasks carried out by designers and/or managers, there is both an “art” and a “science” in developing (writing) a Business Plan, and one proven approach is described in this Planning Tool Kit. A successful business plan goes well beyond “forecasting” and “budgeting”, which many companies substitute for real business planning.

It is believed that the information requested by this Planning Tool Kit is CUSTOMIZED for and NECESSARY to a new business plan, yet no more than necessary.

Whether a new business plan is to be very simple or comprehensive, it is important that the effort to develop said plan be rapid, efficient and uniform.

While impossible to predict precisely, the level of effort to create a business plan document of medium complexity, all things being equal, should take once begun some 40-60 hours of effort each, among several key people familiar with the new idea’s basics, spread out over an elapsed time between 4 weeks on the one extreme and 8 weeks on the other.

This elapsed time estimate assumes you and your associates doing the planning all have regular full time responsibilities that must be executed in parallel to any planning effort.

Benefits:

The resulting Business Plan will not remove your flexibility as the planning period unfolds or ends; indeed, it will increase your flexibility, since you and your team will know the exact points of departure from which selected changes can be consciously made, as needed to respond to the market as well as unpredictable external events beyond your reach.

A good business plan will give you and your team control of all the things WITHIN your sphere of influence and gives you a GIANT advantage over others (competitors, etc.) that may have weaker plans or no documented plan at all!

With a good business plan, communications with the people within your company, or with outside parties, can be considerably enhanced.

The end result will help management address and resolve nagging questions and help excite and align individuals around consistent values, vision and a clear mission.

On a daily basis without detailed supervision, a clear mission will further empower people to take business actions aimed properly at making the overall business plan a reality, in the same way that, say, following a preferred software development process allows R&D people in general to get better project results without constant reviews.

Moreover, you can communicate with confidence and obtain more cooperation among colleagues, if you share the business plan with those colleagues and with selected others, both orally AND in writing.

A good plan often works wonders as a RECRUITING TOOL as well, especially to attract and retain the upper echelon of talented people that you may want to attract (with suitable confidentiality safeguards, of course).

Finally, depending on the final objectives chosen for the business plan, the business plan document will allow you to communicate effectively with outside people, possible strategic partners, potential funding sources, and last but not least - - potential customers & prospective customers.

The writer believes that most successes in business ultimately comes from the persistent pursuit of a sufficient number of sound underlying business processes, and not primarily from some single great idea or from some grand vision.

Remember also, that completing a new Business Plan is only half the equation for ultimate success; “excellent execution” of the Plan is the other critical half. By its very definition, excellent execution implies comprehensiveness and thoroughness, with attention to details. The genius of a successful business plan is in the execution details.



                   B. Executive Summary



The importance of the eventual Executive Summary of an overall Business Plan cannot be overemphasized. Choose any favorite expression for absorbing and acting on this immutable fact:

   a) The Executive Summary will make or break the plan”;
    b) It is the key to the whole plan”;
    c) If we can’t prepare a clear, concise and compelling condensation of our design idea or business right up front, no one inside or outside will spend time wading through the rest of our plan”;
    d) The Executive Summary is the heart of our plan”; etc.


In their hearts, all business people know this is true. The Executive Summary is where insiders, outsiders, potential supporters or investors, et al, will look first.

As you write successive versions of your Executive Summary, you must constantly ask, “If presented with THIS Executive Summary, would I invest (time, money, resources, etc.) in this design idea or business enterprise?”

What IS a “good” Executive Summary?

A good executive summary is one that gives the reader an immediate sense of why this particular design idea or business entity is interesting. It answers, “What IS this design idea or business?” “Who is going use these products and/or these services?” “Why would anyone buy into this design idea or from this business enterprise?”

The Executive Summary encapsulates the ENTIRE PLAN into ‘a few’ succinct paragraphs. It’s NOT an introduction, not a preface, not an abstract nor a random collection of thoughts. Rather, it must become (eventually) a “stand-alone Business Plan in miniature”.

After 10 to 15 minutes of reading the Executive Summary, a reader MUST come away excited, knowing exactly what you or your team would be up to, going forward.

The Executive Summary may (accordingly) be the most difficult Section of the Business Plan to write, or among the most difficult. Ultimately, it must be hard hitting, written in simple language, and it must avoid jargon and other “TLA’s or FLA’s” (three or four letter acronyms). It should exude confidence but not hype.

The Executive Summary should be one to three pages of total text, but certainly not more than five pages long, all depending on the scope of your design idea or business plan. Additionally, graphs and illustrations are fine, even recommended, but only if they are immediately obvious in meaning.

Writing the early drafts of the Executive Summary will help you to:

   a) quickly yield the gaps in the basics for your design idea or business and where additional work must be done immediately;

   b) make the “rest” of the business plan sections less intimidating to write; and

   c) Create a far better “final” Executive Summary, because of the natural refinement of multiple versions.


In any fresh draft of the Executive Summary, you and/or your planning cohorts that you may enlist, should try to touch on all topic areas in Sections C. through J. of the business plan TABLE OF CONTENTS provided at the beginning of this PTK, even if some of the sections are still very preliminary.

Additional guidance for the Executive Summary will come from the “stimulating questions” set out below in this Section B.

Stimulating Questions:

Generally, the Executive Summary should give its readers a feeling:

   a) for your basic design idea and/or business concepts,
   b) that the way forward is well-thought-out,
   c) that all people associated with you are very capable;
   d) that there are definitely rich market niches to tap;
   e) that your new idea has unfair product/service/market advantages; and
   f) that the new plan’s financials are realistic and achievable.


Start out by crisply stating the MISSION (or refreshed Mission) of your or your company’s business, why new revenue and profit from your ideas & plans are important to the overall corporation, why your new idea or business will be important to your customers’ success and might be more important in the future, how the current company’s business came about (a little history), and describe any current products and services, and what your company’s “core competencies” are.

To continue, describe any current vertical market niche(s) and how any current products and services fit into these niches, set out where the company has been and is, and then where the your team would like to it to be in the future, in new products, services, new revenues and profit, how possibly new people will be allocated among various roles and functions, what facilities the company has and you will need, where new people are to be located and may be located in future, what steps you might take and/or your company currently takes to protect trade secrets & patents (if any), what unique infrastructure, trademarks and intellectual property may be involved in your new ideas, etc.


Then state the current situation in which you find yourself, either alone or within a company; who is on or will be on your current team, if anyone; who some of the typical customers are currently, if any; what vertical niches of the market that you enjoy today, if any; what you think ‘customers’ “need” and will need in future, and how a refreshed entity will help fulfill those needs by leveraging your business plan.

Tell about the overall market niche you want to attack, and whether it has been growing and will grow by 2012 and beyond, and how rapidly, and do the same for each chosen current or new technical or commercial vertical market niche.

Tell how the present company, if any, currently learns of sales leads, how it currently reaches customers and sells to them, what the key metrics of the business are that promote selling, what the geographic coverage is, what the sales cycle seems like, who the company partners with now and should partner with (or acquire) in the future with your new ideas, and why affiliating with such partners/acquisition targets makes sense.

For the latter, state what advantages would accrue to your company if such a new affiliation were carried out, whether market niche dominance might occur, and what backup partners/acquisition targets might be sought if the primary ones are not available, and what the downsides might be of affiliating (less independence, financial risk, etc.).


Challenges:

Next we’ll move on the challenges which your current company faces—both internal as well as external. Identify what the potential vulnerabilities are, including the “employee assets going home every night”; missing, aging or under-performing products or services; hard-to-maintain infrastructure interfaces; possible problems with people recruiting and retention, compensation, stock & options, pricing or profit % problems; cash flow, legal issues, licensing, lease, subscription/transaction issues, dependencies on certain outside sources, long lead times, and other miscellaneous risks.

Next move on to identify COMPETITORS. Name them all, if possible, and then list for each the similarities and differences between your company’s current & newly-proposed products and services, and theirs. List their strengths and weaknesses, and MOST IMPORTANTLY, identify the UNFAIR ADVANTAGES that you believe you have or will have over them (or vice versa). These unfair advantages become the “value propositions” of your design idea or company - - the “differentiation” - - the compelling reasons of why you will win and succeed in your chosen market niches. (Also, define clearly what “winning” means in your case).

Also, list what you think competitors might be doing NOW, and what they might be doing in the future, to block your new ideas or business. What will you do and should you do, to battle them?

Discuss the existing and/or new people you may get involved with your idea or company, their “history” and backgrounds and strengths vs. weaknesses, spots yet to be filled, and vulnerabilities if key people quit. Document personnel needs going forward, new ideas of where these people can be recruited or obtained, what new incentives may be offered, etc.


Objectives:

What are the next three years’ intrinsic objectives and financial targets (or longer)?

Try to be very specific with these objectives. For examples:

* Achieve $ X million in total new revenue by YE 2012.

* Achieve $ Y million in product revenue in YE 2012.

* Achieve $ Z million in Services in YE 2012.

* Sign up new partners (ABC, DEF, et al).

* Convert XX corporate accounts from competition by YE 2012.

* Hire X permanent people with Y background by 1-01-11.
        
* Start a Training Class for the Selling Process by 09-01-11.
        
* Achieve a balance of international to domestic revenue of ZZ% by YE 2012.

* Etc.


Each Objective should have implementation details associated with it, by the time the business plan is declared complete.

What is the planning team’s confidence that these can be achieved? Give most likely, upside and downside scenarios. List all the assumptions!

What specific things do you have to do, to realize your objectives? In what specific order? When do they have to be underway, and then completed (milestones)?

What are the constraints (if any) on your design ideas or business imposed by the existing company management, Board and/or investors? List some milestones that you plan to use to measure progress, and give some measure of sensitivity to making/missing milestones (past & future). State some countermeasures that can be used if you miss milestones (i.e. what is the importance of timing, market windows, etc.).

Evaluate the pros & cons of radical alternatives, and what might happen to your ideas or the company as results.


Finally, write a hard-hitting final paragraph of the Executive Summary.

                                                    # # # #


PTK Contents & Excerpts A. & B. © 2009 Russell F. Henke 


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Coming next month: Progress at Mentor Graphics’ Mechanical Analysis Division

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                                                    # # # #

The writer would like to express a debt of gratitude and thanks to Ms. Peggy Aycinena for the outstanding contributions she made to EDA Weekly during her long tenure as Contributing Editor, and to wish her every success in her new activities going forward.


-- Russ Henke, EDACafe.com Contributing Editor




Since 1996, Dr. Russ Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. The number of client companies for Henke Associates now numbers more than forty. During his corporate career, Henke operated sequentially on "both sides" of MCAE/MCAD and EDA, as a user and as a vendor. He's a veteran corporate executive from Cincinnati Milacron, SDRC, Schlumberger Applicon, Gould Electronics, ATP, and Mentor Graphics. Henke is a Fellow of the Society of Manufacturing Engineers (SME) and served on the SME International Board of Directors. He is also a member of the IEEE and a Life Fellow of ASME International. In April 2006, Dr. Henke received the 2006 Lifetime Achievement Award from The CAD Society, presented by CAD Society president Jeff Rowe at COFES2006 in Scottsdale, AZ. In February 2007, Henke became affiliated with Cyon Research's select group of experts on business and technology issues as a Senior Analyst. This Cyon Research connection aids and supplements Henke's ongoing, independent consulting practice (HENKE ASSOCIATES).

Since May 2003 Russ Henke has (along with Jack Horgan) now published a total of eighty-one (81) independent articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafé and EDACafé. Further information on HENKE ASSOCIATES, & the full Planning Tool Kit Special Promotion, etc., is available at
http://www.henkeassociates.net. March 31, 2010 will mark the 14th Anniversary of the founding of HENKE ASSOCIATES.




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-- Russ Henke, EDACafe.com Contributing Editor.


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