I have a different interpretation on the numbers...
that basically comes to a similar conclusion.
Battery Pricing
First, we need pricing on the batteries. Using a 45 watt-hour battery at $1.65 per wH manufacturer's pricing is $75 per laptop battery. Note, there are recent indications that pricing could exceed $2.00 per wH for laptop batteries, so this pricing is conservative. Also there indications that the new cells are better, so that three cell laptop batteries may be able to store as much as 60 wH, and four cell batteries 85 wH. For larger batteries, the price per wH will be lower, but we could see pricing over $100 per battery. I suggest using $75 as a conservative number until we get further confirmation of improved storage capability.
Cellphone batteries will likely be in the same range per wH but Valence's cellphone batteries will store about 5 wH. Check this link out for manufacturer's pricing on Ultralife's cellphone batteries:
techweb.com
The Ultralife batteries store only 3 wH (0.8 A-hr times 3.7 volts) and fully assembled will cost between $12-15 per battery to manufacturers. This works out to about $4-5 per wH. However if final packaging costs about $3-4 per unit, then the cells will be priced around $3 per wH.
Gross Margins
Next we need to look at gross margins. Valence expects to breakeven at 3000 laptop batteries per day from line 1 (some recent info indicates that this breakeven occurs at a much lower rate). This production rate is around a million batteries or $75M per year.
That means that line 1 will need to generate about $20-25M in net profits to cover SG&A and R&D, and perhaps another $10M to cover depreciation, taxes, and interest. If the gross margin is around 50%, the numbers work out. A gross margin of 50% seems reasonable and conservative for a new product like this. This means that the material, labor, maintenance, and utility costs of running the NI plant will be around $37M. This also seems reasonable.
Now if the company can sell 2M laptop batteries per year, then much of the gross margin proceeds from the second million will flow to the pre-tax bottom line, even allowing for some increased overhead and depreciation. We could easily see $30M from the second million laptop batteries, and this of course is over $1 per share.
Capacity issues and Market Size
Now, I understand the capacity of one of the high speed Italian lines is at least three times line 1. So if one of the high speed lines is set up for laptops, then the company should have enough capacity to make at least 8M laptop batteries per year. However, I don't believe that they can sell this many that fast. My guess is initial production and sales in the 1.5M per year range ramping to maybe 3M per year rate over the next year. Fred expects a much faster ramp.
One of the Italian lines will produce cellphone batteries, and could produce on the order of 10M cellphone batteries per year. Using $1.65 to $2.00 per wH and assuming 5 wH batteries, then the unit pricing will be about $8-10 per battery. So each cellphone line could generate $80-100M per year in revenues.
Valence expects to have 5-6 lines in place by the end of the year (at least one going to the Korea JV). The numbers get to be too optimistic using this capacity, so I'm just looking for 3M laptop batteries annually in my estimates by the end of 99. This is enough to generate some pretty good earnings.
Paul |
