Hi Larry, Here's a bit on LEXR.
I don't yet know about the impact of the litigation on their product design--bought in anyway at 8.03. I like
the product and distribution/resellers
FWIW
Lew
LexarMedia (LEXR):
Website:
lexarmedia.com
WFN: Note the Street Scoop has gone down from 3 stars to 2 stars, but Quote.com still
has it favorable +3.
"This company makes high performance digital “film” for digital cameras. The “film” is really
a high performance digital storage device. Now the firm is positioned in the red hot digital
photography sector. The number of digital cameras is expected to grow from 2 million in ’98
to 21.8 million in ’03. And the market for digital film is expected to grow at a 72% rate,
increasing from $80 million in ’98 to $1.2 billion in ’03.
Reception to the firm’s products has been positive. In ’99 they received awards from
Popular Science and PC Photo. Market acceptance has also been favorable. Compatible
with virtually all digital cameras, the product is available through Best Buy, CompUSA, Wolf
Camera, Target, and Wal-Mart.
Sold through distributors and OEM’s, the customer base is narrow. In 6m’00 the top 10
customers accounted for 77% of revenues and include Ingram Micro, Kodak, Tech Data,
and Impact Peripherals.
Notably, the opportunities for growth are not limited to digital photography. The products
may also be adapted to Internet music players, laptops, PDA’s, digital video recorders, and
network appliances.
On the downside, the firm recently lost in litigation with competitor SanDisk. As a result it is
redesigning it’s products to avoid infringing on SanDisk patents. The success of such
redesign is presently uncertain and may significantly dampen near term performance.
Lexar also recently acquired a firm to provide an Internet based digital photo processing
and printing service. Moving from the high operational leverage of it’s product to add a
service clouds the firm’s outlook. Photo processing is also a highly competitive area in which
the firm has no evident distinct advantage. Pursued as one of those “end to end” strategies,
it may actually weaken the firm’s valuation.
This firm is experiencing explosive revenue growth. Unfortunately, it’s also a cash burner as
well. Between ‘98-’99, revenues increased by 284% to $29.2 million, with a 15.8% gross
margin and a $13.5 million loss (adjusted for non-cash items). Between 6m’99 and 6m’00
revenues grew 341.9% reaching $40.8 million, with a 16.6% gross margin and a $10.9
million loss (adjusted for non-cash items).
Valuations in this sector have been generally unfavorable. Competitors SanDisk and Hitachi
both recently traded in the lower half of their 52-week ranges. Despite the weak
comparables and adverse litigation outcome, the sharp revenue performance has added
volatility to pre-offering demand. After initially being reported as weakening, it is now being
reported as strengthening from moderate to strong (Street Scoop: 3 stars).
Conclusion: This firm is poised in the early stages of a promising and rapidly growing
industry. It has demonstrated the ability to dramatically generate substantial revenues.
However, the diversification into the photo finishing business and the uncertainty following
the adverse litigation outcome creates a cloud. Consequently, this is a very speculative
offering. However, we expect the explosive revenue performance to generate attention and
expect a somewhat favorable reception (e.g., 30%-50%) followed by volatility and a
possibility of mild longer term appreciation. " |
