MYLEX CORP -10Q- Filed on May 12 1998
Here is some information from the most recent 10Q....
1) "...At March 28, 1998, the Company's working capital decreased to $81.2 million ..." This is equivalent to $4.02/SHARE
2) "...The Company has been engaged in a stock repurchase program pursuant to which it has purchased to date, for $8.5 million, 864,200 shares of the Company's Common Stock..." Their average cost so far on the buy back is $9.84/SHARE.
3) "...Gross profit for the three months ended March 28, 1998, was $9.7 million or 34% of net sales. The lower gross profits in the first quarter of 1997 was primarily attributable to a charge for inventory obsolescence taken in that quarter..." Before extra ordinary one time charges, this is still a good number equivalent to $0.48/SHARE.
4) "...The Company's largest customer during the first quarter of 1998 was Digital Equipment Corporation ("DEC"), which accounted for $9.5 million or 33% of the Company's net sales during that period. The Company's second and third largest customers during the quarter were Siemens and NEC, which accounted for $4.1 million or 14% of net sales and $2.1 million or 8% of net sales, respectively..."
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Based on their most recent 10Q, the book value is still $4.01/SHARE based on the current inventory valuation of $1.31/SHARE. Cash in the bank is equivalent to $0.57/SHARE. Securities (ie. short term marketable investments) account for $1.73/share.
I would like to know just what type of "marketable securities" are in their portfolio. If it is MYLX stock it is now worth 1/2 as much!
Therefore, CASH and SECURITIES are equivalent to $2.30/SHARE.
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Summary
If MYLEX's new products can maintain 70% of last quarter's previous sales (see No. 3 above), it is possible for Gross Profits to come in at $1.34/SHARE. I am assuming here that the DEC account is lost or significantly reduced, but other OEM sales to NEC and Siemens continue to grow. Both IBM and HWP stay at current Q1 1998 levels or are replaced with new account sales.
Futhermore, if SG&A is maintained at last years level of $0.65/SHARE, MYLX should net $0.69/SHARE. At ten times earnings, the stock IMO is valued at $6.90/SHARE
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The Wild Card
If MYLX can maintain last year's sales levels based on their new products and both IBM and DEC/CPQ find that it is more cost effective for MYLX to build and manufacture these boards (and sell this cost effective approach to these companies); Mylex could earn as much at $1.25-$1.30/SHARE.
At ten times earnings, MYLEX could be priced at $12.50-$13.00/SHARE
What our management needs to focus on is delivering product to these large OEM's utilzing JIT (Just In Time) manufacturing technology combined with integrated On-Line OEM fulfillment systems. MYLEX needs to have their large OEMS see them as their manufacturing partner rather than as a competitor. This business model is similar to what Soletron now does for CSCO, COMS, INTEL.....ie. a contract manufacture.
EKS
P.S. Based on my analysis, I have started to accumulate shares at current prices and will do so up to $6.00 per share. |
