Just my take on some of it,
I would assume that Radica is working very diligently on finding
out (prior to Q1 CC) from Hasbro what they intend to do
regarding ODM/OEM work by Radica. Hopefully Radica will
have concluded if any continued relationship with Hasbro is in
the best interest of Radica and at that time let its investors know
where it all stands. For now I think they are still sorting it all out
and doubt that Mr. Davids, Feely or the rest will be out thought
by us. Their management is one of their strongest assets.
From what I can tell, the % of possible lost earnings on an
annual basis is very minimal. Less then 10% in 1999. If it went
away this year, based on Q1 is over, Q2 is half over, David's
comments on Radica does still have their contracts with Has and
the fact that OEM takes an even larger back seat in 2nd half of
the year, I would conclude that 1998 bottom line effect at this
point could not be any greater then 5% earnings and will
probable be none. Also that the core growth is so large that the
OEM again pales and though it adds to the bottom line the
growth vastly overshadows it.
Is this good news? Up front ,no. Could it be an asset to Radicas
bottom line down the road? Yes. When there is not a crunch on
capacity, like Q4 was, of course the OEM is nice to have.
Consider this however, if Radica was not having to make Hasbro
games last Q4 when they were running full capacity, what do you
think they would have been making instead? If the OEM work is
an engine driving Radica, at this point it seems to have a very
poor weight to power ratio. I would have to agree that the biggest
concern is Hasbro as a competitor. However, this may not
outweigh the needed future capacity for high margin production
in 1999, based on the sound of the new product quality and
acceptance. Hasbro may also decide that they wish to keep their
family board game section separate from the short lived
electronics that Tiger produces. Two entities in the hand held
electronic sector, MB/Parker and Tiger. Heritage and Here Today
Gone Tomorrow Electronics. Hasbro may also clean a lot of the
Tiger CRAP out (about 70% of their product, IMO) and leave a
lot better exposure for Radicas games as well as Hasbro's. It
would not surprise me that the ODM/OEM work Radica does is
still more or as profitable to Hasbro as Tigers better margin
games.
If in fact Hasbro plans on walking away from Radica and there is
development of future games going on at this time or it is not
made clear what Hasbro's intentions are, I am sure Radica will
address this in their best interest with firmer contracts, less R&D
or whatever it takes to play hard ball with these guys.
Bottom line is, a lot can happen and the worst of it does not seem
to be the sky is falling, IMO.
Wayne |
