ALPHA MICROSYSTEMS's service business, which provides virtually all of the
company's revenues presently, may benefit from a major contract signed today by one of
its customers, Tech Data, with GE Capital. Tech Data is an $11 billion re-seller of computers
and related equipment. During the March quarter ALPHA signed an agreement with Tech Data to
service "white boxes" and other generic equipment on a contract basis. Customers can select a
different provider instead, but Tech Data now is proposing ALPHA as its service agent of choice.
The deal between Tech Data and GE Capital, believed to be in the $2.0 billion area (annual
revenues), could provide ALPHA with a substantial upswing. In a nushell, GE Capital will be
providing the financing, Tech Data the equipment, and ALPHA the ongoing service under a wide
swath of new business. The collaboration could migrate into existing accounts, as well.
Service contracts typically run at 12%-18% of the equipment's acquisition cost, suggesting a (maxed
out) potential market of $240-$360 million to ALPHA. Obviously, most customers will be
established clients with existing service relationships. So ALPHA is not going to approach those
figures. But even 5% penetration would advance revenues by $12-$18 million, a sizable impact in
light of the company's current $40-$50 million run rate.
ALPHA's service business already has been on the rise since the start of the year. That
progress, combined with the new Tech Data potential, has caused us to upgrade the value we're
attaching to the service business to $4.50 a share (from $3.00 a share).
Our estimated valuation for AlphaConnect remains unchanged at $6.00 to $.900 a share.
As a result of the service business's improving prospects we are lifting our target price for
the stock to $10.50-$13.50 a share.
Fechtor,Detwiler & Co., Inc.
225 Franklin St., Boston, MA 02110
(617)451-0100 |
