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Technology Stocks : SYQUEST
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To: MoonBrother who wrote (5640)2/23/1998 12:28:00 AM
From: Michael Coley  Read Replies (1) of 7685
 
RE: SyQuest Q2 Projections.

One thing that you're missing completely is the effect that the reduction of high-margin legacy cartridges had on Q1's Margins.

Another thing that you've not factored in is that Q1 is typically SyQuest's best quarter, while Q2 is often their worst quarter. Q1 for SyQuest is the "Christmas" quarter, which often accounts for 40% of many company's retail sales.

Your SG&A number looks reasonable, although I would expect to see it closer to $18 million.

I still think that your SparQ ramp costs from Q1 are WAY too high. Also, you're going to see more SparQ ramp costs this quarter as they increase the production in March.

Although your numbers use current ship rates, you also assume that their ramp in March will be on time and will see results in March. I think this is highly unlikely.

You can't just assume that the drive is being sold for a 20% gross margin. PERHAPS they'll see those types of margins if the drive is produced in HUGE quantities, but here in the 10's to 100's of thousands of drives per month range, I seriously doubt that SparQ is profitable. The wording that they used in the conference call tends to confirm this view. ("They danced around the gross margin question a number of times by reiterating that SparQ needs to be a high volume product")

Keep up the good work on the analysis. Although I disagree with some of the numbers (and the conclusions drawn), it's refreshing to see a SYQT bull using numbers. ;)

I'll post my projections sometime soon. (Hopefully they'll be closer than my projections from last quarter, which were far too generous towards SyQuest.)

- Michael Coley
- wwol.com
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