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

To: Larry Brubaker who wrote (14276)	9/4/1999 2:07:00 AM
From: Rich Wolf	Read Replies (1) \| Respond to of 27311

Larry, a small correction: the third line has indeed been in NI for many months, and it was discussed at the shareholders meeting, as well as on various conference calls. So why no word about this line since then? Well, maybe they had to cannibalize it to get the Klockner line running (line 1, for laptop cells). If you think back, Lev said the Klockner was a piece of junk, and they'd rebuilt over half of it. They had to get the parts from somewhere, may as well have been from one of the Arcotronics machines. Since the laptop cells are going to be their bread and butter, with no competition even on the horizon for thin prismatic format cells of that size, it made sense to do so. (This would explain their feeling justified in their lawsuit against Klockner.) Considering that the watt-hour production capacity of line 1, even at its slower unit output rate, doubles or triples the output of the cellphone line (line 2, which the eventual line 3 will be identical to when it has its parts replaced), the majority of the revenue will be coming from line 1. Until one year hence, when they expect to be taking delivery of much faster large-format assembly equipment. That was the equipment mentioned in the call that needed a one-year lead time for ordering, which they'd just ordered. Its maximum unit output rate is 30 cells/minute, for any size cells (caveat: they wouldn't start it at maximum, any more than they have the other lines, which they've run at roughly half-speed to get they yields they folded into their revenue rate estimates). This is the equipment which would allow for jumping the revenue rate to 'in excess of $250M a year from now,' that Lev mentioned on the call. Since they've been selling cells from line 1 to Alliant since July, they appear to be confident in the product off that first line right now. Also, I wouldn't be too hard on Lev for not answering our question about production run rates. He doesn't want to divulge his pricing, so he has chosen to switch to quoting revenue rates. So I didn't take it as a dodge of the question. He admitted he couldn't do the '70 some-odd M $' rate until he added the additional back-end processing equipment he noted, but since we know he has perhaps half of what he needs already at each stage of the back end (the degas/reseal machine issue is an unknown factor, since they've been doing that by hand for laptop cells, but the rest we know about from the sm), I feel comfortable guessing he can do one-third that rate today. That one-third rate is more than sufficient to respond to modest POs of the size he was queried on (e.g., 100,000 laptop cells). And since the other equipment he mentioned was not new technology, but just carbon copies of what they already have (conditioning ovens, extraction equipment,...), he was comfortable talking about how he was going to be running through that revenue rate fairly soon, too. (What else could allow that? Well, better pricing than he assumed for the number he quoted us, higher run rates or more hours running than he assumed, higher yields than he assumed,...) So again, to me it wasn't a 'dodge,' in fact it was a sign to me that he's really ready for business: he didn't want to talk about how the technology development is going, he wanted to shift to talking about revenue. But what he can do, production-wise, is just half the equation. So, about those POs....