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Strategies & Market Trends : Steve's Channelling Thread
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To: Larry Brubaker who wrote (7695)11/11/2000 4:14:55 PM
From: Zeev Hed  Read Replies (3) of 30051
 
I am assuming "gross margins" at 50%. The almost finished batteries, I calculated (and that calculation may be wrong) cost them $1 MM (the difference in cost of goods between the last and this quarter with essentially the same sales volume). That $1 MM in "costs" would have ended up as $2 MM in sales if gross margins are indeed 50%, quite a rational assumption for this type of business (well anywhere between 30% to 50% and going down, of course when Asian competitors compete on price or sell at cost to buy market).

By the way, in normal accounting, depreciation charges (about $2.75 MM per quarter) are charged to COGS. You can start and model the holy profitability picture in the following manner. If you assume that indeed their Gross margins are 50%, then their fixed costs are $4.75 MM ($6.75 less the $2 MM for $2 MM of discarded batteries and $2 MM shiped batteries) plus dpreciation costs of $2.75 MM, or $7.5 MM. Thus on an operational basis they should break even once they ship $15 MM per quarter. To cover their existing overhead (SG&A and R&D) of $3.5 MM , they need to ship another $7 MM per quarter or a total of $22 MM quarterly before breakeven. That is without taking into account increases in overhead that will be incurred in launching a licensing organization (probably can be done for $1 MM quarterly). I think that Lev refused to reconfirm his former forecast that they'll be at a run rate of $70 MM by the end of the year nor would he respond if that figure will be reached in another few quarters (he told the guy, if you were patient for 10 yars what is the rush (VBG).) I have to conclude that the driver behind the stock in the next six months or so will not be production profitability, but licensing deals.

Zeev

Zeev
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