Doug, you sure did use "more pessimistic estimates"!
First, you are predicting that Net sales decline from $5.0 (4Q results) to $4.0. Why, and why so much? They can't lose any Y2K revenue ;-), are you thinking that they might deep-six the CASD line of business? Or do you think their acquisitions are _that_ sick and still getting sicker?
You are predicting royalties to decline from $0.7 to $0.3. This seems to make sense, I'd agree with any number between $0.0 and the most recently reported amount (I have no idea how fast the royalties will phase out, just that they will).
Now the part that I really have trouble with. You are predicting Cost of Goods to increase from $3.0 to $3.2, even though their sales dropped from $5.5 to $4.0! You think SG&A and R&D (two other classes of expenditures) will more or less stay flat, going from $8.6 combined (Q4) to $8.5 combined.
This leads to an operating income (loss) of ($7.4) (as Bill "CR" corrected). If this is at all representive of their cash burn, then look out!, their Q4 balances of $13.8 cash, cash equivalents and short term investments looks pretty threatened.
Do you really think that Zitel's core business (CASD disk drives, and the acquired companies) will deteriorate this fast??
Now the next part, you predict Zitel will have interest income of $1.5. I don't see why, since 5% annual interest on $13.8 gives me an answer of $0.17.
Now I understand why the CEO talked about cost cutting on the conference call - if they don't quickly cut costs, they might run out of cash before they can turn the business around. I did not realize before, just how close to death this company might be.
Unrelated to next quarter, but interesting nonetheless is that Accounts Receivable for Q4 are $6.5, compare to net sales of $5.5. 106 days of sales outstanding is, ahh, attention grabbing.
Perhaps we should start discussing the liquidation value of Zitel? I'm beginning to suspect that covering at $5 might be a big mistake (leaving too much money on the table). If ZITL (the stock) does not crash too quickly (i.e., it crashes slower than Zitel the company), it might make sense to not cover, but rather increase short positions in another quarter or so, if the company gets further behind the power curve. Shorts have very little to gain by covering early (profits have already been marked-to-market, so they are available today! A real profit, not a paper profit!).
- Daniel |
