Matthew- I owe you a smile. Here is a report that his been e-mailed, faxed and discussed a lot the last few days with fund managers and analysts.
Valence Technology - February 24, 1997
More new information- I spoke with the company today and was advised
that the avg cellphone cells are now 1.2 amp-hr x 3.8 volts = 4.56
watt-hr/cell, previously 4.1 wh/cell. I will do my best to
re-summarize. The capacities discussed here are for the lower-cost
manganese dioxide version.
1-Each Valence Technology cell is a stack of flat sheets of material.
2-Cell shape will have all surfaces rectangular--like a cd rom or
audio cassette case.
3-Cell voltage remains stable at 3.8 volts over a wide current
range. (3.6 volts for Cobalt)
4-Capacity is normally stated in Amp-hours. Multiply x 3.8 volts for
Watt-hours.
5-Cells will have attached leads, not terminals, for interconnection.
6-Typical cellphone batteries will be two 4.56 watt-hr cells in series
and will take the same physical space as two Sony 18650's. Footprint
will be 36 x 65 mm (1.4 x 2.56 inches). Thickness 9mm (.354 inches)
7-Typ notebook batteries will be 4, 15.5 watt-hr cells in series and
will take the same physical space as a CD ROM drive. Footprint will
be 4 x 4 inches.
8-These watt-hr numbers are for MnO2. Specific energy for Cobalt is
10-20% higher.
9-A changeover to cobalt is simple substitution of one ingredient in a
batch - walnuts vs pecans.
10-Each production line has several machines, or stations, connected
together.
The first steps for manufacturing cellphone and laptop cells are
identical. At some point downstream, material is cut into four identical
cells for cellphones. For laptops, it remains intact as one large cell.
Machine cycle time does not change, so the production rate for a certain
line is a multiple of the rate for the largest cell(1-2-3-4 etc).
Although these first (new standard?) laptop batteries will have a 4x4
inch footprint, the mfg equipment upper limit is 4x5 inches.
Accordingly, the first line now in initial operation and built by a
North American pharmaceutical packaging equipment mfr, can produce 1.5
million laptop cells or 7 million cellphone cells/yr at 24hr/day. During
the first few months, it will be alternating between the two cell types
described above. It's design facilitates multi-product changeovers and
easy setups and will run at a relatively low speed.
The second line, being built by an Italian capacitor machinery mfr,
should produce 4.5 mln laptop cells or 21 mln cellphone cells/yr.
Although the 3rd and 4th lines are on order and will be nearly
identical, their schedules should permit incorporation of improvements
and fine-tuning etc found appropriate for the 1st high-speed line.
The charging circuitry will be specified by the company for the OEM's. A
likely recharge time will be about 3 hours with no "memory" concerns.
Charging circuitry for existing batteries other than Lithium-Ion will
not be appropriate. Retrofit kits for pre-Lithium ion batteries (another
OEM market for VLNC) would therefore include new circuitry and
instructions for disconnecting the existing charger.
VLNC's laptop cells hold about 150 watt-hours/kilogram and cellphone
cells about 130 wh/kg. The difference is attributed to the larger
portion of packaging material for several small cells. Currently,
liquid-electrolyte LiIon cellphone batteries sell for about $100 and
laptop batteries for about $200 retail-just slightly more than NiMH with
over 2x the energy storage capacity and about 3x the capacity of NiCad
cells, without the environmental concerns.
Energy production differences(wh/line/yr) between cell types are largely
due to their size as a % of the maximum width for the machine,. Each
laptop cell uses only 80% of the 5-inch maximum width, which more than
offsets its slightly higher density in watt-hr/kg.
Line 1 maximum capacity
cellphone cells-7mln cells/yr x 4.56 watt hr/cell = 31.9 mln watt-hr/yr
(or) laptop cells--1.5mln cells/yr x 15.5 watt-hr/cell = 22.25 mln wh/yr
High speed lines maximum capacity (each)
cellphone cells--21mln cells/yr x 4.56 watt-hr/cell = 95.8 mln wh/yr
(or) laptop cells-5.25mln cells/yr x 15.5 watt-hr/cell = 81.4 mln wh/yr
The popular Sony 18650 cobalt cell holds 90 watt-hours per kilogram and
4.68 watt hr while VLNC cells hold over 1.5 times as much per kilogram.
The main difference is due to the 19650's metal case required to hold
liquid. Specific energies for liquid and solid electrolyte are about
equal by volume. OEM's are now paying about $2 per watt-hour for the
liquid cells.
In his conservative manner, Cal Reed (CEO) said "We don't know what
premium the market will pay for solid cells, if any" It would seem that
given the higher density and elimination of liquid electrolyte, there
should be some premium (5-15%?). I will use the $2 figure regardless.
From the conf. call Cal Reed still expects line 1 production cells for
testing this quarter and to be production-qualified this summer. He
expects line 2 qualification near yearend or early next year with a 7-12
mln cells/yr rate at yearend.
It seems reasonable that lines 1 and 2 could be in full production by
the end of the fiscal yr(March 31). I will use a .75 factor to allow for
holidays and repair shutdowns etc. With the company's 40% profit goal,
This would be $ the rate of production:
Line 1- laptop cells----22.25 mln wh/yr x $2/wh x .75 x .4 = $13.4mln/yr
Line 2- cellphone cells--95.8 mln wh/yr x $2/wh x .75 x .4 = $55.5mln/yr
--------------------------total $68.9 mln/21.7 mln sh = $3.175 sh/yr
After experience with line 2, design for lines 3 and 4 could be
finalized simultaneously and both fully-operational by Summer '98 with
the first Hanil-Valence lines in Korea. The on-line efficiency should
increase. I will use .8. Here is an "if all goes well" scenario (Ireland
plant only) for mid '98. Remember the market is such that there should
be no problem selling all that can be produced!
Line 1-50/50 mix including special orders, more setups, shorter runs etc
-laptop cells------22.25 mln wh/yr x .5 x $2/wh x .75 x .4 = $6.7mln/yr
-cellphone cells---31.9 mln wh/yr x .5 x $2/wh x .75 x .4 = $9.6mln/yr
Line 2-lg OEM cellphone--95.8 mln wh/yr x $2/wh x .8 x .4 = $61.3mln/yr
Line 3-lg OEM ord laptop-81.4 mln wh/yr x $2/wh x .8 x .4 = $52.1mln/yr
Line 4-lg OEM cellphone--95.8 mln wh/yr x $2/wh x .8 x .4 = $61.3mln/yr
--------------------------subtotal---------------------------$191mln/yr
------operating cost & depreciation--------------------------($30mln/yr)
-----------taxes-Ireland are very low---------estimate--------($8.5mln)
--net profit(neglecting joint ventures)-$152.5mln/22mln sh =$7.02/sh/yr
Here is a more conservative scenario: first 2 lines running at 50%
capacity and the company settles for a 25% profit margin to get into the
market- March 31,1998: Cash is running low, but Income is paying
operating expense.
Line 1- laptop cells---22.25 mln wh/yr x $2/wh x.5 x .25 = $5.56mln/yr
Line 2- cellphone cells-95.8 mln wh/yr x $2/wh x.5 x .25= $23.95mln/yr
------------------------subtotal--------------------------$29.5 mln/yr
-----operating cost & depreciation------------------------($25.0mln/yr)
-----taxes-Ireland are very low--------estimate-----------($3.2mln)
----part of max $30mln rebate-Irish govt-------------------$7.5mln
--net profit(neglecting joint ventures)--$8.8mln/21.7mln sh =$.40/sh/yr
July 31, 1998- Company has 1 more line in operation, efficiency and
pricing have improved to yield 30% margin and operation at 65% capacity.
Irish taxes offset by rebate.
Line 1- laptop cells---22.25 mln wh/yr x $2/wh x.65 x.30 = $8.68mln/yr
Line 2- cellphone cells--95.8 mln wh/yr x $2/wh x.65 x.30=$37.35mln/yr
Line 3-laptop cells------81.4 mln wh/yr x $2/wh x.65 x.30=$31.75mln/yr
--------------------------subtotal------------------------$77.78mln/yr
---------operating cost & depreciation-------------------($28mln/yr)
net profit(neglecting joint ventures)--$49.78mln/21.7mln sh=$2.29/sh/yr
Oct 31, 1998- Line 4 is brought on line, margin up to 35% and capacity
at 75%
Line 1- laptop cells----22.25 mln wh/yr x $2/wh x.75 x.35 =$11.68mln/yr
Line 2- cellphone cells--95.8 mln wh/yr x $2/wh x.75 x.35 =$50.29mln/yr
Line 3-laptop cells------81.4 mln wh/yr x $2/wh x.75 x.35 =$44.36mln/yr
Line 4- cellphone cells--95.8 mln wh/yr x $2/wh x.75 x.35 =$50.29mln/yr
----------------------------subtotal-----------------------$156.6mln/yr
------------operating cost & depreciation------------------($32mln/yr)
-------------taxes-Ireland-----------estimate--------------($12mln)
--------- 50% ALLIANT/VALNCE LLC &
--------------HANIL/VALENCE-revenues-guess------------ $20mln
-------------------net profit-----------$132.6mln/21.7mln sh =$6.11/sh/yr
It's feasable that on-line efficiency could eventually approach 90% and
material costs should remain relatively low with MnO2. Watt-hr
capacities for MnO2 and Cobalt should increase with R&D. Switching to
cobalt, with 10-20% more specific energy(wh/kg), should increase the
sales price in proportion(at $2/wh). Material cost would increase by
10-12%. The market may pay a premium for solid vs liquid.
It would seem reasonable to apply a multiple of 20 to these earnings/sh figures to estimate share price around the time these earnings are forcast and eventually reported. Best Regards, FMK |
