Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Dennis who wrote (1208)	10/28/1997 9:00:00 PM
From: FMK	Read Replies (1) \| Respond to of 27311

To all - an indication of renewed institutional interest. I received a call this afternoon from a fund manager who remembered my calculations posted on the Internet. He wanted to know how to find them. I offered to send what I remember posting in July and had saved as a Word document. He voiced his enthusiasm for the company's outlook. He was E-mailed the following: ---------------------------July 1997-------------------------- What should we expect for December 1998? Here are some calculations and the assumptions behind them. They are the best I could do with the information I could acquire. My earlier computations were based on expected production line output in terms of cells and known stored energy per cell in watt-hours. I assumed a market value of $2 per watt hour. With one set of production rates from the company I came up with capabilities for the high speed lines of earning over $130 million per year each for laptop cells and almost $60 million/yr each for cellphone cells before taxes or overhead if run 3 shifts per day. The latest 3-shift/day numbers since the conf call use a discounted $/watt hour figure and work out to a substantially lower maximum of about $68 million/yr for laptop cells and $35 million/yr for cellphone cells. After subtracting $30 million for operating expense and $8 million for Irish taxes I came up with $7.49/sh to support a previously-posted statement that the first 4 lines combined were capable of earning $6/sh if run at full capacity. $7.49/sh/4 lines = $1.87/line earnings, including a low number for line 1. Since this was based on 3 shifts/day and at maximum rates, I will use $1.10/line for 2 shifts/day operation. The company plans to add 1 line per quarter. Starting with 4 lines at the end of Q1 '98 there should be a total of 7 lines installed by December. I will use only 6 lines to allow for hiring and training crews etc. $1.10/sh/line x 6 lines yields a rate of $6.60/sh earnings for Dec '98 from the Ireland plant based on 2 shifts/day. Some factors that can affect the outcome: 1)There is a consensus that there is a market for all Valence can produce. Recent knowledge suggest that Valence will be first with the product. I believe chances of either the laptop computer or cellphone market shrinking are near zero. 2)There was some concern that available cash will run out before sufficient revenue can replace it. It appears that the $32 million rebate from the Irish government will come just at the right time. If not, the alternatives should present a minimum threat to share value. 3)Will competition force lower margins? I believe the demand will be sufficiently strong for the first 2-4 years such that it should not be a significant factor. 4)Will Li-Ion solid polymer be eclipsed by a superior technology? I would expect a life span similar to NiCad or Nickel metal hydride with a minimum of 3-5 years. I would expect continuous improvements and with the addition of Dr. Kalnoki Kis from Gould, there is no shortage of talent in the R&D department. 5)What if, after all their testing, the high speed lines just can't turn out good product? Conservative Cal Reed has publicly stated that they can meet the Motorola spec. We know he must be sure or his legal dept would have kept him quiet! They have apparently solved most conceivable production problems at lower speed with line 1. We lost a few weeks on the timetable but gained essential knowledge. Line 2 has been extensively tested in Italy, short of using "fresh" chemicals and laminate materials. Unlike line 1, the company expects it to go into operation with few problems. 6)What if these estimates are 50% high for some reason? I don't think so, but 2/3 of $6.60/sh is $4.40/sh earnings. With a conservative PE of 20 it would still work out to an $88 stock a quarter later when earnings come in. At some point, I would expect them to go to three shifts per day. Most established large industrial facilities run fewer shifts only when factory orders decline. A third shift increases production by almost 50% with no added capital expenditures. If my figures are correct, 6 production lines run at maximum could then earn $10/sh! 7)What if the timetable slips by 3 months? I would rework the numbers for 5 production lines for Dec '98. 8)What will be the effect of the joint ventures? I believe some revenue should show up in the second half of 1998. Depending on the accounting, it should eventually roughly equal 50% of the values used here per production line. I would encourage anyone to do his own calculations as these are my own interpretation of information I was able to acquire. However, I expect that before December '97 events such as successful startups of production lines, OEM contracts and joint venture developments will increase the certainty that it is all coming together. Again, my best regards to all who own the stock! Fred M. Kellett