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Technology Stocks : ADFLEX SOLUTIONS ( AFLX )
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To: Kent Sarikaya who wrote (398)7/23/1998 4:24:00 PM
From: rich evans  Read Replies (1) of 718
 
Kent, I listened in the the CC.As you know Adflex is getting hurt on both the supply side and demand side with price competition resulting in price declines double the normal rate. These declines now are 4-5%. The declines are a result of the Asia problem and especially the Japanese flex fabricrators who are selling very cheaply. The problem is not so much in the assembly side (Good for SFLX). And on the demand price the HDD problems continue along with the inventory adjustments in changing to a BTO pull-sell thru system. So lead times are short and backlog misleading. With restructure breakeven is 44 mill so Q3 should be breakeven. Good news is that their are many new programs larger than normal (141) and these programs are one stop shop type so they should have better margins and would impact both fab and assembly.They used to count programs separately for Fab and assembly so the number is better than past comparisions would indicate.Balance sheet Ok about the same. Thailand expansion is a big thing for this company and will cover almost all of the HDD and also do some front end finishing which now is all done in Ariz and then shipped to Mex or Thailand.They decided to keep their customers by reducing prices to meet competition. So customer relations OK. Conclusions: Bottom fell out both on supply and demand. Company geared for certain margins cost wise and rev of 50-55 mill. And Q2 had to take emergency action when bottom fell out. Now on workout of problem and will take awhile with 1/2 recovery in 3 months IMO and back at end of Q4 with new programs and realigned costs IMO. So once again patience is the byword.

Rich
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