[Re: managing analysts expectations]
A 25% shortfall in earnings (roughly, $3M after taxes) vs. the previous quarter was not completely unexpected. The company had previously reported a reduction in new bookings (175M vs. 207M for the previous quarter) and an exclusion of about $38M in previously recorded Asian orders.
For the lithography division, last 10-Q stated that as of Dec.31, 1997 the company had firm orders for 47 MS with questionable orders for additional 27MS not included in the backlog. Most likely, they can not force Intel or IBM to accept MS shipments ahead of schedule and did not achieve much progress on most of the 27 MS out of schedule. If this quarter orders are no better than previous quarter orders (which in itself is not very surprising), the production rate of 15 Micrascans per quarter achieved in the end of 1997 is unsustainable. Even a small reduction in output to 13MS/q would reduce revenues roughly by $10M (at $5M per MS). With 40% margins, this is lost $4M in earnings before taxes. This would account for a major portion of the now predicted $3M after-taxes earnings decrease.
The question arises, why did analysts ignore the reduced backlog and left the earnings estimates at the previous quarter levels (even slightly higher - 39c vs. 37c) My guess is that analysts would not do it unless somehow assured by management that progress is being made in securing some of the "lost" Asian orders. This agrees with the latest story about counting on Asian orders outside the backlog. IMO, a rather irresponsible approach on the part of the management.
Looks like SVGI is still unable to secure market for their MS product outside the selected list of "preferred" customers that currently account for 74% of their sales. The stock price is now close to book value, but drastic capacity expansion with limited customer base is a risky strategy.
Of course, the "If you build it, they'll come" approach works well in the movies, but somehow I don't feel too inspired.
Y.
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