Ken, TRKN has some interesting technologies. However they tried to bite off too much when they bought Electrotech. Had they hoarded their cash and concentrated on refining the MORI source and concentrated on making sure that their existing customers were happy they'd be a smaller but financially healthy company today. The etch tool, which Dave talks about, is an offshoot of the MORI. They could probably have stayed profitable throughout the slump due to interest income rather than interest expense.
As it stands, they are reducing R&D to save money. This helps some in the short term, but hurts the long term. Also they have apparently not been able to completely satisfy existing customers. Note on their balance sheet the extremely high numbers for demo systems and for AR. These are signs of dis-satisfaction, as is the lack of repeat orders from Hyundai.
A year ago they were estimated to be 1 1/2 years ahead of the competition. But now a year later they have not advanced all that far, and the competition has had time to play catchup. By the end of 1998 the early lead will be gone. Customers now can simply wait for the competition to develop similar products and order from someone that they know will be around, and that they know will take care of them. After all, they don't need the new tools today, but sometime next year or even the year after.
Can TRKN fail? Absolutely. They have a significantly negative tangible net worth. Yes, they still show equity, but subtract out the intangibles and you can see that liabilities exceed hard assets, and that there is no liquidation value. They are technically bankrupt today and should the bank or note holders press for immediate payment they could end up in Chapter 11 to stay open.
Given this backdrop I suspect that the problem is that potential customers are unwilling to put their name on the dotted line and fork over any deposits. If I were a potential customer, I wouldn't want to give them any up front money for fear I would lose it in a bankruptcy filing.
Gregg indicated that he expected Q3 to be $20mm, but it came in at $12mm. He indicated that Q4 would be very good, but now it probably won't be. I suspect that this uncertainty over their future caused push-outs. If I am right, then an acquirer would be a big winner because these potential customers might all sign immediately. Given this, TRKN may have some bargaining power left, but very little as potential acquirers all know that TRKN no longer has any hope of succeeding on its own. The only motivation to make a good offer is the fear that someone else might make a better offer, and not the fear that they wouldn't accept the best offer, because I believe that they have to.
In my opinion TRKN today is simply an acquisition play. Thus they may turn out to be a good investment, and they may not. In my opinion, the only question left is how much they can get for the company.
Good luck,
Carl |
