Hi Paul,
I have seen the contribution made by Steve, and have reflected on it at some length.
As regular readers of this "thread" know, it is my view that management made some mistakes in the way they brought on the 16G business last year, accelerating sales at a time when its internal controls were not adequate to handle the increased business. In addition, some government-related business and procurement issues weren't cleanly handled.
Steve and I also have very strong views regarding the value of the company's technologies, and on those matters, we are very much in agreement. Where he and I part company is in our respective views of the relative importance of the two issues.
I believe that 1997 can be thrown into the "learning experience" column, and although it is disappointing that earnings weren't more reflective of the improvement in sales, I see the disconnect as something that can be overcome with relatively little effort. In addition, it should be obvious to everyone that the "timing" of ITS and its market penetration is becoming a little more acute...that is, there should be a considerable breakout in orders over the next six months.
That part of Simula's business is relatively uncomplicated, manufacturing an ITS takes the coordination of only about a dozen separate parts, and profit margins on the ITS business should be quite high (perhaps 25%-30% pretax). If you believe, as I do, that ITS revenues could approach (or perhaps even exceed, depending on developments going forward) $ 250 million by calendar 2001, the profitability of that portion of the business will be so high as to grossly eclipse *any* other problems existing in the basic business portfolio.
In time we will know, Paul. But I view the downside risk here as very manageable, and if the upside is eventually reflective of my ITS view, the upside "potential" is many times the current stock price. Accordingly, though the analytic community *and* Steve are arguably correct on their assessment of management "fumbles", I believe that they are being somewhat short-sighted in their opinions.
But, that is what makes markets. Perhaps we will have a much better idea of our ultimate ITS market penetration following the Detroit, late-February SAE sponsored auto show, when a number of first-tier's will be displaying Simula products.
I will be in attendance at that show, and will certainly post on the entities that appear to be planning Simula relationships.
Have a good afternoon. |
