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Technology Stocks : VALENCE TECHNOLOGY (VLNC)
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To: Jay Lowe who wrote (6104)12/19/1998 1:20:00 PM
From: gvander  Read Replies (3) of 27311
 
Jay, great job on your model.

I think you have the right idea. Just don't forget there are going to be quite a few more competitors than the public knows about right now.

From Feb 1998.

"Yuasa will start sample supplies of the battery in April, and
full-scale production is slated to begin this fall.

The sample battery will be a little smaller than A5 size. Its capacity will be 1750 mAh(3.6 x1750mWh).Yuasa calls it the "Film battery."

Also, try to convert your model into a cash flow model. Try to assign probabilities to each competitor and event. If you suspect Valence will get 20% of the 5% how certain are you (20% of 5% is too high but use this until you understand some of my other comments).

Use the p to mark the CF down or try to incorporate it into your discount rate. Most models I have seen include 7-14 producers in 1999 and scale it up each year until the shake out period. Peaks range from 30 to 70 (too much media hit this area attracting too many participants) producers and decline to a equilibrium of about 5-10.
One thing you also need to look at is the "advancement/substitution effect." The industry will not platuea and freeze in time. Because of the recent press it only appears to be the holy grail. You need to model in a decline or some sort of second generation technology. Some people have handled this by considering CF too speculative to project beyond 5 years and thus discount them at rates of 50%-100% for companies which are dependent on one type of technology (NMH, even Bellcore). Also don't forget to adjust company specific and industry wide revenues/margins as competition intensifies and as the technolgy declines. I know this seems like a lot but you can get very accurate results if you take the time to think about the new technology adoption cycle and build it in to your model.

Good luck you are off to a great start.
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