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Technology Stocks : VALENCE TECHNOLOGY (VLNC)

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To: Zeev Hed who wrote (5928)	12/12/1998 7:36:00 PM
From: Larry Brubaker	Read Replies (1) of 27311

Zeev: Here's a few numbers for you. Red Chip Review did an article on VLNC over a year ago before dropping coverage last spring when VLNC failed to deliver. Red Chip's numbers: Line 1 (slow speed line) for laptops. Production capacity (3 shifts per day) = 2-3 million units. Selling price per unit = $20. Line 2 (high speed line) for cell phones. Production capacity (3 shifts/day) = 7-8 million units. Selling price per unit = $8. The first line is in the process of being qualified. As of the last CC (November), the CEO said the line was running at "some speed" but would not acknowledge it was producing production samples for OEM testing. The second line had not yet been delivered as of the last CC, but the CEO said it was expected in a week. Red Chip assumed a gross margin of 40% by the 5th quarter of production and an operating margin of 15% at the same time. They assumed a gradual ramp-up of production beginning with one line on one shift with a gradual expansion of lines and shifts. They assumed net earnings of 15 cents per share during that 5th quarter of production, based on 24 million shares outstanding. Three lines were assumed to be producing by this time, but not at full capacity. Based on their assumption of 15 cents per share by the 5th quarter of production, their 12-month target price was $18. They assumed a p/e of 30 applied to 15 cents per share for the 5th quarter of production. Red Chip's numbers have been described as extremely conservative on this thread, but so far they have proven to be very optimistic. For example, they assumed their would be 24 million shares outstanding during the 5th quarter of production when actually there is likely to be at least 30 million, and possibly many more shares outstanding by that time. And they assumed that VLNC would currently be in its 4th quarter of production. The Red Chip numbers did not include any estimates of revenue or earnings from joint ventures with Alliant or Hanil.

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