First, a thanks to BGuy for providing numbers to support his convictions. Some of the shorts on this board, including me, have asked longs for their earnings projections, and BGuy is the first long to respond, in a fashion. (No earnings per share estimates for Zitel, but at least some figures on MD sales.)
I will even assume that the $0.65 LOC rate is written in stone, and that none of the jobs will require additional, costly manual conversion.
OK, so 24 completed jobs of 100,000,000 LOC each will give Zitel a share price of 35. Even one job of that size sounds pretty big to me. How many of them are out there? If the NIH job was to have been one of these, how many companies or government institutions have as much code as NIH? Furthermore, how many of these potential clients with 100M LOC to convert have not already started the conversion or signed contracts with other y2k service providers? My guess is not many.
Now if I understand anything about Marconi's recent posts, it is this: we can extrapolate future trends from a small sample of previous performance. Let's look at MD's success rate. The MAP2000 has been commercially available for about 6 months, and there have been two small contracts--one with Nevada for $5M and one for the Army (with Northrup as VAR) for $14M. Neither of these comes close to being a 100M LOC order. At BGuy's estimate of $0.65 per LOC, these contracts together represent 29,000,000 LOC, leaving 23,971,000,000 LOC to convert, in order to justify ZITL at $35/share. In its first 6 months of commercial production, MD has contracts for 4,800,000 LOC per month. (Contracts, not completed jobs!) There are 26.5 months left to go until y2k.
In order to convert 23,971,000,000 LOC between now and y2k, MD will have to get contracts and complete jobs averaging 904,566,000 LOC per month for the next 26.5 months. This means that MD will need to see 188 times the amount of business per month than they have in the previous 6 months.
If at this point, you are still nodding your head (no reference to the executioner joke intended) and saying that an immediate ramp up of more than two orders of magnitude should be no problem for MD, remember this: Zitel is not Matridigm. Zitel is a minority investor in the preferred stock of MD. I have read the posts on this board related to the complex ZITL/MD relationship, and I understand the circumstances that would lead ZITL paying royalties to MD. But I still can't understand the mechanism for MD's profits, if there ever are any, to flow to ZITL's coffers. In other words, even if MD sells its MAP2000 at a rate 188 faster than it has previously, how does ZITL get paid for its investment?
Just a few musings.
John
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