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Technology Stocks : VALENCE TECHNOLOGY (VLNC)
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To: Zeev Hed who wrote (9631)3/21/1999 1:08:00 PM
From: gvander  Read Replies (1) of 27311
 
This industry is beginning to become fundementally unattractive.

Inherent profitability to a great extent is dependent on industry structure. The lithium polymer industry stucture is deteriorating.

Whether a company does well is dependant on how much value the product offers and the Company's industry structure.

In this case, the product was at one time a significant improvement over existing NMH NICAD and LI-ION. Howerver that has changed drastically. Let's assume LI-polymer can still add at least some value. Then the analysis must turn to who caputres that value? This then depends on the structure of the industry.

Here the situation just gets worse. There are many new entrants and more expected by the end of the year. Thus value will have to be shared with them. There are also many new substitute products placing a ceiling on pricing and thus the ability of participants to captuer the now very marginal improvements if any that their products offer.
Don't forget the relative power of buyers and vendors in this industry. The buyers, as everyone in the industry knows, have emmense bargaining power and use it to extract as much value as possible from participants. Also suppliers are consolidating and thus will be extracting what value is remaining on the front end.

I dont even have to mention the degree of competition within the industry. The fierce compitition and riverly between LI-Polymer companies is intense to say the least. Stories of sabbotage have even ciculated. It seems clear at this stage their is no value to be extracted with the industry structured as it is. Overcapacity and over competition will dominate.

I am changing my statement from 3 years ago from "this industry is fundementally attractive" to this industry was. Until the industry dynamics change dramatically I think the pressure within the industry will wipe out many of the companies talked about as leaders today. Strategic reserves will become slightly more relevant. The timing and deployment of them will become paramount.

As I have said many times--the are many new technologies comming. Some we have already seen some we haven't but one thing is clear this is just the tip of the Iceberg.

Look at just some of what we have seen:

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Just my opinion.
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