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Technology Stocks : EFII - Electronics for Imaging -- Ignore unavailable to you. Want to Upgrade?

To: code a lot who wrote (459)	12/13/1997 2:22:00 PM
From: WTSherman	Read Replies (2) \| Respond to of 1460

A few words of caution to all those tempted to jump back/in to EFFI now... Aside from the possibility of a "bounce" next week, I'm not so sure about EFII's long term prospects. I'm sure that they will continue to be a major player in the color business, but, the market share and margins they've had are not going to be the same in the future. There is intensive competition coming in all of the areas EFII competes in and the day's of selling proprietary RAM for PC's at 4x market price are over or nearly over. Also, EFII has been a master at channel "stuffing", i.e. cutting advantageous deals with their OEM customers to build up inventory. Sooner or later this catches up with you and it just did for EFII as their OEM's have obviously decided that they can't afford the risk of building up inventories that typically depreciate in their warehouses. While the high end digital color printer/copier business has continued to show steady growth, it has not had the rapid upswing that many thought would be occurring this year. Its the same story on low-end color laser. This market was thought to be a rocket on the launch pad, ain't worked out that way. The products are selling well, but, not going out in the big numbers that most in that business expected. Also, EFII's sales are probably somewhat exaggerated in the past year by the number of OEM deals made by the Japanese mfg's of the color copiers in '96-'97. Virtually all the major mfg have signed up multiple other labels for their machines. These companies have gone out and inventoried EFII products, but, selling color isn't a snap and I think that they have more than enough product on hand. A few other thoughts...the "spam" mail talked about the strength of stock prices for Xerox, Canon, etc., as a good indicator of the overall strength of EFII"s business... This is a really weak analysis. NONE of EFII's major customers get really big sales numbers from their color products. Certainly all of them have less than 10% of revenue from color products. Their overall sales momentum is not a clear indication of EFII prospects. Lastly, regarding new products...one of EFII's problems is that their "channel stuffing" strategy makes it hard to roll out new products effectively, since their major customers have inventories of older products which will be obsoleted/depreciated by the new ones. This can cause major league antagonism between EFII and its big customers unless managed very carefully. All of which is not to say that EFII is not going to return to some level of prosperity, but, I think that some caution is needed before investing and an understanding of the dynamics of their markets is required before assuming that the good old days are bound to return. Lastly, IMHO EFII management is pretty good and the situation they find themselves in is more a product of a business model they've used for a long time, than ineptitude..