August 13, 2002 Qtr Conference Call Notes:
Kevin - VP Finance
Stephan - CEO
(1) VLNC would be moved to NASD Small Cap market as it has been trading below $1.
(2) Stephan's objectives for the quarter were, namely,
find additional Tier 1 customers
new products based on Saphion technology for multiple applications
sign OEM agreements for the cylindrical cells
Licensing of Phosphate materials and batteries.
(3) The first quarter performance was as expected. Revenue $509K for this qtr.
(4) There was a delay in signing Tier 1 agreements. Product qualification process has been extended because OEM's have cut back resources and revised their resource allocations, due to current economic uncertainties. Fewer people are available at Tier 1 companies for product qualification activities.
(5) Recent testing of their N Charge system showed that the battery seemed to lose power after long term storage. (Stephan would not indicate what "long term" meant. Questions were asked to find whether it meant weeks or months. Stephan would not give the specifics.)
VLNC put the N-Charge system sales "on hold" until they find the cause for this problem and fix it. A root cause analysis was in progress.
He said that they have a containment plan in place to address the defective systems. He was confident that the plan would address this problem fairly soon.
(6) The strong revenue growth he had predicted earlier this year will be delayed 1 to 2 quarters.
(7) VLNC will take steps to watch the company's financial situation and needs. (The recent 18% manpower reduction announced November 4, 2002 seems in line this statement.)
(8) Three leading notebook PC vendors are testing VLNC batteries.
(9) The marketing efforts on the "large format Saphion" batteries is in progress with many potential customers: USABC, Tyco, etc. for uses in the automotive and the telecom sectors.
(10) VLNC is working with Chinese companies on manufacturing Saphion batteries.
(11) In a short period, VLNC managed to get a favorable media response as indicated by articles in San Jose Mercury News, PC Magazine, the Inc. magazine, etc.
Questions and Answers:
(12) Long term storage problem with the N-Charge system.
No problem with normal use of this battery system. The problem seems to occur after long-term storage. VLNC wants to fix the problem before resuming N-Charge system sales.
(13) Majority of the revenue is due to N-Charge system sales. Stephan would not reveal the exact sales figures for the N-Charge systems for competitive reasons.
(14) Cash available as of August 2002: $7Million, $4 Million line of credit, $30 Million in credit line. (VLNC reported, in a previous earnings call, a burn rate of $6-9 Million per quarter and their intention to cut costs wherever possible. Why Stephan can not cut costs deep enough to reduce their reliance on the discounted stock sales to Berg? Why would Stephan allow his shares to be diluted so fast by this financing option? )
(15) Have you identified the source of the long term storage problem? They have a "containment" plan in place to address the defective N-Charge systems. They believed that the "containment" plan would work. It could take a few weeks or few months to find out. This unexpected problem put them 1 to 2 quarters behind schedule.
(Valence Technology Moves Forward With N-Charge Qualification Process
Thursday September 26, 10:52 am ET
AUSTIN, Texas--(BUSINESS WIRE)--Sept. 26, 2002--Valence Technology Inc. (Nasdaq:VLNC - News), a leader in the development and commercialization of Saphion(tm) technology and Lithium-ion polymer rechargeable batteries, today announced that it is moving forward with the N-Charge(tm) qualification process with leading notebook vendors as a result of validating its containment plan, previously discussed during the Company's first quarter conference call. "We are pleased with the progress we have made in the past few weeks," stated Stephan Godevais, chairman and CEO. "We are looking forward to continuing our engagement with Tier One notebook vendors." The N-Charge(tm) Power System is available from Valence's partners, including Tiger Direct, Datavision-Prologix and CSM Direct, as well as from the Company's online store at www.valence.com.)
Tier 1 customers - Three OEM's are actively engaged in the product evaluation phase. OEM's showed a high level of desire to use VLNC batteries. It takes several months to evaluate any product. Current economic conditions have forced OEM's to reduce the level of resources deployed outside of their core businesses.
The delay is bad news, but it is only temporary. The good news is that OEM's would not be spending their critical resources on evaluating VLNC products if it was going to be a waste for them. They started with a larger funnel of OEM's about seven or so, and finalized their relationships down to three.
(16) How many customers? Seven major brands. Three went ahead with product testing. Two are on the "wait and see" mode. Overall OEM response to VLNC batteries was strong.
(17) N-Charge system sales and customers? About 30% of N-Charge customers, mostly individuals, responded to their customer satisfaction survey. They were satisfied with the battery performance. Stephan would not give the sales figures on N-Charge battery sales for competitive reasons.
(18) NI plant - In an earlier earnings call Stephan claimed that NI plant was capable of producing 2 million whr/month as of February 2002. VLNC has signed contracts for additional production capacity in Taiwan and also signed contracts for assembling of the N-Charge systems in Mexico.
(19) Cylindrical cells Too early to say much on this topic. VLNC is engaged with several companies in the Far East on the cylindrical cell manufacturing (Taiwan and China).
(20) Pricing of N-Charge system $199 and $349. Initially kept the prices high enough to avoid conflicts with OEM marketing channels. Low price point will increase sales volume but not at the risk of undermining OEM's profits selling VLNC batteries.
(21) N-Charge sales Majority of sales from HP (HPQ) was at $199. Majority of sales from VLNC web online sales was at $349.
(22) Why sign up additional contract manufacturing in Taiwan and Mexico if NI plant is actively producing? This is VLNC's strategy to meet production demand as they expect to quickly ramp up production soon. VLNC wants to employ a "mixed manufacturing strategy" to minimize capital needs and respond to the expected production ramp up. They also want to diversify parts of battery production into China.
(23) Do you anticipate a fundamental problem with the Saphion technology? Stephan emphatically denied that there was any structural problem with this technology. End of call
Questions for this week's call:
(1) What is your current burn rate for the quarter and anticipated burn rate for the next quarter?
(2) How much of the Berg's $30 Million credit line will be used before earnings start, we they are diluting shares by selling the stock at discount? Is Stephan not concerned about the rate at which his shares are getting diluted, as there is no earnings to support a higher stock price? Why this month's cost reduction was limited to 18% manpower reduction? Why not cut deeper? Why not cut the salaries of those highly paid VP's and the CEO until earnings start?
(3) Stephan's schedule was to ramp up production at the NI plant to 5 Million whr/month by June, 2002. What is their current "proven" capacity?
(4) Last August when Stephan rolled out VLNC plan, he focused on applications for the large format Saphion battery viz. automotive and telecom sectors. What is the status of USABC participation? When will they finish testing and start producing EV's? How Delphi agreement will affect the sales of large format Saphion batteries for automotive use?
(5) When will they finish testing battery qualification for Notebook PC's and announce sales of notebooks with VLNC batteries?
(6) What is the status of small format battery for electronic devices like PDA's and Tablet PC's?
(7) If the current management can not deliver revenue soon, will the VLNC Board consider a buy-out of VLNC? What will be a fair buy-out price?
Caution: The above are my personal notes, subject to errors or omissions. Serious investors with questions for VLNC on any of the issues discussed above should refer to the original source of information: SEC filings, Investor relations and VLNC management.
Ram |
