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Technology Stocks : Orckit (ORCT)
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To: savolainen who wrote (1530)10/19/1998 9:45:00 AM
From: Daniel Ralls  Read Replies (3) of 1998
 
Hi S, Your adsl #'s look good for qtr 3. They make alot of sense. I was coming up with the same problem you were for figuring Q4 numbers. If you take the $100 cost savings to get $375 cost per line and multiply that by say, 25000 lines in Q4 you get $9.375MM, take $330 revs per line gets you $8.25MM in revs, resulting in a $1.125MM loss on ADSL in Q4. This loss is less than Q3 which goes against mgmt saying the loss in Q4 will be larger. I came up with 4 possible scenarios that could get you a larger loss in Q4:
1. They sell over 30000 adsl lines in q4. I don't think they will sell that many though.
2. HDSL/Other rev decline significantly from Q3. I doubt this too, since you have SPT Telecom ramping and probably more sales to South America.
3. R&D/SGA expenses rise significantly. Possible, but these items don't go into ADSL cost of goods sold.
4. The $100 cost savings for the plastic casing is done now, but won't be implemented until the new chipset is ready. This one makes the most sense to me and if it is correct we would see a higher net loss and gross margins would decline further.

New chipset savings...on your conf call post it said ORCTF expects the new chipset will save 30-40% on the line cost. Take your $475 cost per line now, multiply by 35% gets you savings of $166 per line. This is in line w/ that analyst estimate of $160 savings per line.

I now believe that ORCTF will do all the cost savings at the same time which is somewhat disappointing but there could be technical reasons to do this (ie the plastic casing is smaller than the metal one, to fit the new smaller chipset)

Can anyone come up w/ other possiblities?
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