Historically, there are three main reasons for increases in DSO. The simplest is a single big customer having cash flow problems. If that is the case, the resolution is that the customer is either "recovering" or that we end up holding the bag and have to write off these receivable. That case is actually the "best case" since it is a "non recurring event" and eventually, the market will look forward to future growth. Short term, it does have negative impact, since the market will be looking for "a second shoe" to fall.
A second common reason for increase in DSO is "stuffing the channel", namely the company is granting better terms to incentivize its customers to "take product". That is not so good, since it implies slowing of demand growth and it also "smells" a little of "earning engineering".
A third "common cause" is a change in the end market for the products (for instance, more and more retail sales with intrinsically higher DSO), but I doubt this is the case here, since we were already at 28% retail in the last quarter and DSO were acceptable at 61 days.
As for the stock, I had the $52 area as a support, and it was breached last week, the next support is in the low $40 were the decline was arrested last spring. Then we had SEG to blame, now with much better visibility of earnings and growth, all we can do is "blame" the cycle.
Zeev
irrevolute.iuma.com |
