------Valence Technology December 1998----REVISED--------
(Using 5 mln laptop batt/year/high speed line (earlier value)until 7 mln can be verified.)
What should we expect for December 1998? Obviously not as much as the company had indicated in 1997. Based on their plans for adding 1 assembly line per quarter, I had projected, with an engineering approach, 5 production lines in operation by December '98. We know there have been setbacks.
However, this time the company has confirmed their production schedule via press release, which should be considered a milestone.
Here are some possible scenarios based on more recent information, including some calculations and the assumptions behind them. I am using the higher-margin, higher watt-hr-per-assembly-machine values for laptop batteries since it appears likely that the company will direct its efforts there.
I have compared my capacity figures with others doing similar calculations. Here is the consensus:
Line 1 - 2.4 mln laptop batteries/yr at 2 shifts/day.
Lines 2 & 3 - 5 mln laptop batteries/yr at 2 shifts/day.
The 11/97 preliminary product data sheet indicates 4mm, 6mm, and 8mm thick versions of the 4x4" cells. Energy storage is proportional to the thickness. The production rate is inversely proportional to the thickness per cell because the cells are assembled at a constant number of bi-cells/minute.
The batteries/yr figures are assumed to represent the 6mm thickness which would be consistent with 6.4 mm for the single size depicted in May 97. It is further assumed that batteries consist of 3 cells, 17.5 watt/hr each for a total of 52.5 watt-hr/ battery.
Sales price per battery has been recently estimated from $40 to $80. I will use $40. Profit margins will be higher for laptop than for cellphone applications. The company's early goal has been stated as 40%. I was told that 50 %to 90% would not be unreasonable for being first to market with quantity and it would be safe to assume 50%. I will use 40% regardless. The remaining factor is yield, which allows for the occasional bad batch of laminate or for a machine breakdown that makes a few hundred scrap batteries before the problem is noticed. I will use 80% for this figure. I believe the company would not be happy long-term with less than the upper 90's.
In November 97 the company indicated that they were successful at 100% speed with both lines 1and 2. However, line 2 was running cellphone batteries at the time and neither was tested at 100% for an extended period. They had previously solved all known assembly machine problems at 50% speed. It would be highly unlikely not to be near 100% in December, but here are some potential earnings for a 50% speed scenario.
Dec '98 - lines 1 -2 -3 50% speed at 2 shifts per day
Line 1-------- 1.2 mln/yr x $40 x .40 x .8 = $15.3 mln/yr
Line 2-------- 2.5 mln/yr x $40 x .40 x .8 = $32.0mln/yr
Line 3-------- 2.5 mln/yr x $40 x .40 x .8 = $32.0 mln/yr
-----------------subtotal--------------------- $79.3 mln/yr
-----------------operating cost---------------($25.0 mln)
----------------Irish taxes---------------------($3.2 mln)
-------------other taxes----guess------------($16.5 mln)
------net profit------$34.6 mln/23.7mln sh = $1.46/sh
Here is a 100% speed scenario with 2 shifts/day
Line 1---------2.4 mln/yr x $40 x .40 x .8 = $30.7 mln/yr
Line 2---------- 5 mln/yr x $40 x .40 x .8 = $64.0 mln/yr
Line 3---------- 5 mln/yr x $40 x .40 x .8 = $64.0 mln/yr
-----------------subtotal--------------------- $158.7 mln/yr
------------------operating cost--------------($27.0 mln)
----------------Irish taxes---------------------($6.3 mln)
---------------other taxes-----guess----------($40.0 mln)
------net profit-----$85.4 ml/23.7mln sh = $3.60/sh
For many months some investors have used $1 to $1.25 per share earnings capability per production line. I have previously posted computations based on the $1.25 figure The earnings figures, of course, would not show up until the end-of-quarter report several months later and could be reduced by additional equipment and interest expense etc. The above figures therefore represent the rate of earnings production by the NI facility and have neglected the $32 mln Irish rebate and any joint venture income.
Notes:
1)The Ireland plant has room for a total of 10 assembly lines. I understand that once revenue is established, the company plans to add one line per quarter. 50% more capacity should be possible without more capital expenditure, of course, by going to 3-shifts per day.
2)There is a consensus that there is a market for all Valence can produce. Recent knowledge suggests that Valence will be first with large quantities with the product. I believe chances for the laptop market shrinking are near zero for the next several years.
3)It is almost certain that available cash will run out before sufficient revenue can replace it. It appears that the $32 million rebate from the Irish government will not come in time. Last Friday a company official repeated that financing is "in the works" that presents minimum threat to share value.
4)Will competition force lower margins? I believe demand will be sufficiently strong for the first 2-4 years such that it should not be a significant factor.
5)Will Li-Ion solid polymer be eclipsed by a superior technology? I would expect a life span similar to NiCad or Nickel metal hydride with a minimum of 3-5 years. I would expect continuous improvements and with the addition of Dr. Kalnoki Kis from Gould, there is no shortage of talent in the R&D department.
6)What will be the effect of the joint ventures? I believe some revenue should show up in the second half of 1998 or early 1999. Depending on the accounting, it should eventually roughly equal 50% of the values used here per production line.
I would encourage anyone to do his own calculations as these are my own interpretation of information I was able to acquire. I would welcome any production capacities, prices or data anyone else has received from the company.
My best regards to all who own the stock!
Fred M. Kellett |
