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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: Eli74 who wrote (14257)	9/3/1999 6:36:00 PM
From: Zeev Hed	Read Replies (2) \| Respond to of 27311

Eli, there is a possibility (and I have no way of determining its probability) that the market reaction mat include some disappointments and fear that the delay in delivery of workable batteries leaves the door open to larger and better financed outfits to fill the vacuum in that market place. If the order is such that it would cover all running expenses and actually turn VLNC profitable within a year, that might be received differently. However, with a current burn rate approaching $32 MM annually, without production, it seems to me that to reach profitability a run rate in excess of $65 MM annually would be required even if gross margins are extremely good at 50% just to break even. To have visibility of earnings of, let say $1/share, at the same gross margins, about $125 MM in annual sales will have to be visible. I think that to generate a real solid rally back to the teens, the street will want to have an indication that these rates are achievable within a short period and with not too great of an investment (about $40 MM in additional working capital will be required anyhow, and thus rapid capital expansion capital will have to await better stock price, assuming the $40 MM working capital is provided by IDB). Since Lev indicated that with current equipment annual production rates under $80 MM should be expected, I would surmise that the market will want to see at least this capacity type of orders to get excited, and as I stated above, that would be barely enough to break even, or more accurately, bring in about $.20/share on an annual base. This number used an assumption of 50% gross margin. It is a rare manufacturing facility that gets such high gross margins in its first year of operation, so, I would not be surprised if earning estimates (once some PO's show up and add up to the existing capacity) would actually be lower. Zeev