Mark-
From what I can gather, costs associated with NetCom ($750,000) and a sales meeting ($250,000) in San Diego were the reasons the estimates were off. No changes were made to revenue estimates. These costs seem to justify higher expectations for earnings, not less.
I have never really viewed the auto diagnostic business as more than potential gravy to the story. It appears that Ford selected GenRad to develop their new 'world car' test machine, not Hewlett Packard, which is really quite a coup. It would imply that Ford has had real success with the GenRad/Jaguar relationship and is seeking to expand it. As well, 2 years ago, Ford was their only customer. BMW, SAAB, Volkswagon, and Chrysler are now counted -- the business is not going away but appears to be qrowing. Again, this never was my focus -- although a gorilla contract from Ford would certainly be welcome.
No, the growth for GenRad will come from the subtle shift going on the board test business. Simply board testing is not a growth business. In fact it's probably declining. What GenRad has identified (and is the bet) as growth, rather than a GenRad machine being an end process tester, GenRad should be an integral part of the manufacturing process -- to improve manufacturing efficiencies by identifty logjams before they occur. You do that through software and was the reason behind the Mitronics aquisition. If it works, it implies higher growth rates and thus higher mulitples. This to me is the risk to the story -- can a $200 million company lead the charge into this new business and is it the market they think it is?
When I sat down with Jim Lyons at the end of 1993 he said the following: we'll break even in 1993, we'll do 25 cents in 1994, we'll do 50 cents in 1995 and we'll make a buck in 1996. The results? 1993 5 cents; 1994 28 cents; 1995 60 cents; 1996 $1.05. Now, people can get all upset about quarterly analyst adjustments, but 1)Jim Lyons never has made quarterly projections 2)does not manage quarters 3)looks to the long term. If three and 1/2 years of solid performance is to be wiped out because of a third party 4 cent quarterly earnings adjustment, then we are all simple traders, not long term investors.
Jim said $1.25 for 1997. I wouldn't bet against it. Jim also doesn't seem to take criticism well. Don't be surprised if Q1 is a bit better than you think.
cfsiii |
