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My #5377 posting has two parts. 1) is the March qtr sales projection. I used every number that I could find and carefully calculated the potential March qtr sales, and got a $54.4mil revenue projection. The sales figure were largely based on the SparQ's current known selling pace, therefore is a fairly convincing number. Even IOM bulls have little dispute on it.
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It seems like you're equating 'polite' dispute with 'little' dispute. I think the $54.4mil revenue figure you have is more than double of what SyQuest is likely to produce for the March quarter. And your $54.4mil estimate is not "largely based on the SparQ's current selling pace". After the quarterly report on Feb. 11, SyQuest said they shipped as many SparQ's in the current quarter as they had the previous quarter. That's 40,000 SparQ's, but that already 6 weeks into the quarter. To get to your 180,000 SparQ's they'd have to ship 140,000 SparQ's in the final 7 weeks. They'd have to average 3 times as many drives shipped over the final 7 weeks to meet your number. That doesn't sound like maintaining current pace, does it?
And you also assume that the other half of SyQuest's revenue from legacy/SyJet/EZFlyer products remain same from Dec to March. What are you basing this assumption on? SyQuest's revenues from legacy/SyJet/EZFlyer has been dropping for the last 3 quarters: $31.7mil(Jun) -> $25.9mil(Sep) -> $25.6mil(Dec). And December is suppose to be the best quarter of the year for SyQuest. Last year Syquest went from $48mil in Dec. to $16mil in March. I'm really interested to know why you think the non-SparQ revenue will remain flat with the Dec. quarter.
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2) is the EPS projection. That part gave an estimate for March qtr's COGS and SG&A, and concluded that March qtr's loss might be reduced to -18c a share. I estimated that the startup cost for SparQ in Dec. qtr was between $10 - $15mil. It is this number some IOM bulls are having difficulty to agree with. Therefore I'd like to spend a little more time to explain how I made that conclusion.
If you read SYQT's June and Sep. 97's qtrly results, you know that SYQT had gross profits of $0.8mil and $0.4mil respectively for the qtrs on the sales of $31mil and $25mil. These numbers showed that SyQuest's existing products have roughly brought even the gross margin. With increased SyJet sales in Dec. qtr, and no new ramp up costs for SyJet, but negative impact from price reductions, we could think that Dec. qtr's gross margin for the products other than SparQ might continue be roughly break even, that leaves SparQ related COGS for about $15mils.
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You're totally ignoring statements made by SyQuest. SyQuest said their gross margins were negatively affected by price reductions, reduced sales of higher margin legacy products, low yield on cartridge production, and SparQ production cost. If what you say were true then SyQuest would have said that excluding SparQ startup costs, gross margins improved significantly. That would have been amazing and I would be a SyQuest stockholder right now.
Their first reason for the horrible gross margin was the price reductions. For 5 out of the 6 months in the the June and Sep. quarters, SyQuest was selling the SyJet for $399/$499. During the Dec. quarter they sold the drives for $299/$299. Don't you think a $200 price reduction on the external drives from one quarter to the next is going to kill any companies gross margins?
Another thing, SyQuest was benefiting from sale of legacy products all during fiscal 1997. 50% of their revenue came from legacy products which had higher gross margins. That is disappearing rapidly. They were down to 14% in the latest quarter. This was helping them break even on gross margins during 1997. It's not going to help them in the future.
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We know that SparQ is designed as a low cost mass production products, the unit cost should never been more than 80% of the unit selling price of roughly $160/unit, therefore the direct cost for producing 40,000 units were about $6.4 x 80% = $5mil, that left startup costs for SparQ at about $10mil.
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I wish Iomega's "low cost mass production product" had 20% gross margins.
Joon |
