David..
We have to be realistic here - the last year and a half have been
miserable to the entire modem industry. In this environment,
for ZOOM gross margins of 20+% and +ve operating cash flow are decent
After all before one can argue about receivables, inventories and all that fun stuff the issue is one did you sell more than you did last year and two are your gross margins better than you had last year. For ZOOM on the first bullet a marginal yes and on the 2nd bullet a resounding YES.
Here's ZOOM's revenue and GM comparisons:
Six Months Ending June 30,
1998 1997
------- -------
Net sales $ 30,873,609 $ 29,987,845
Costs of goods sold 23,587,341 29,178,319
-------------- --------------
Gross profit 7,286,268 809,526
Here's ZOOM's op. cash flow numbers:
(and BTW I do not look at merely a/c receivable trend but I
do net out a/c payable from that number to get the true trend.
Note that last year was what you indicated - net dying mode - in these
numbers but this year the net is zippo - a good thing.
Further if you look at the trend in these 2 sets of numbers
all the numbers have got better from last year to this year.
Call it the 56k vs. 33.6k phenomenon and we are doing better
than our competitors phenomenon.
Six Months Ending June 30,
1998 1997
------ ------
Cash flows from operating activities:
Net loss $ (1,373,287) $ (5,268,386)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 498,913 437,068
Deferred income taxes (126,159) 1,319
Changes in assets and liabilities:
Accounts receivable 5,747,728 10,783,856
Inventories 2,171,700 5,851,026
Refundable income taxes 3,498,777 (2,225,096)
Prepaid expenses and other assets (10,486) 279,877
Accounts payable and accrued expenses (5,058,566) (5,309,145)
Tax benefit from exercise of
non-qualified stock options 809 78,675
Net cash provided by
operating activities 5,349,429 4,629,194
------------- -------------
Compare that with HAYZ
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(17,567) $(7,835)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 7,850 3,198
Unrealized gain on trading securities (3,681) --
Other 959 663
Changes in assets and liabilities:
Accounts receivable (1,329) (19,342)
Inventories (5,937) (11,471)
Prepaid expenses and other current assets (2,160) (89)
Accounts payable 845 17,629
Amounts due to related parties 4,222 1,347
Accrued liabilities (3,677) (1,138)
Income taxes payable 57 62
Other long-term liabilities -- 374
------- -------
Total adjustments (2,851) (8,767)
------- -------
Net cash used in operating activities (20,418) (16,602)
---
The question is whether the crappy modem environment is a thing
of the past or not. I am not sure but I do believe that q3
and certainly q4 and next q1 will be quite decent.
----
(1) The first test for companies in crappy industries is how well they survive the miserable period. Companies like Hayz (very poor -ve gross margins and sales plummeted 18%), BOCI (-ve gross margins and sales have plummeted 20%) and people like Logicode and MOT's modem division did not. CRUS's modem chipsets also bombed. ROK lost market share to LU in OEM chipsets. ZOOM on the other hand has actually got better +ve gross margins (though they still suck a bit - need about 28% to be decent) and their balance sheet has got better. One needs to have good
financial people - HAYZ was so poor at this it was sad.
(2) The next test is do you come out stronger than your position
when you went in. This remains to be seen since there are newer
competitors + the whole 56K OEM thing. But here too ZOOM's market
share has improved in the last 9 months (that 10.5 to about 13.5%
of shelf space now) and their sales have actually gone UP, albeit
slightly. (Consider for a moment who'd be in chapter 11 if ZOOM's
sales had fallen 20% like the other 2!)
(3) The third thing is whether the industry has any future. And herein lies the crux of the problem. Just ask even your buddies 3Com how the modem business will pan out over the next few years and whether or not they yearn for the good old USRX days!
---
As far as their web site goes: It is functional but heck it is poor.
No doubt (wrong color scheme for the red on the logo on the home page - so what do you expect!). News articles are not updated even. BUT
did you notice the NEW VIDEO division. (My local CompUSA has sold
out of ZOOM video cams and the guy there told me today that he can't order them fast enough. Again small market but growing very fast and
might compensate for reason #3 above. Note this is not an OEM
bundled feature and won't be for the next year or so at the least I'm guessing.)
---
Again I wish I had not owned these shares but I knew of the 3 - HAYZ,
BOCI and ZOOM, ZOOM had the best shot of weathering the industry
weakness. We shall see.
---
Shane (as to $100 million those were the good old days. $100 million
for the next 4 quarters - that's my bold prediction.)
