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Technology Stocks : Applied Magnetics Corp -- Ignore unavailable to you. Want to Upgrade?

To: Don Earl who wrote (11139)	12/26/1997 8:52:00 PM
From: Zeev Hed	Respond to of 12298

Don: I have been waiting on the side line (not because I knew the problems facing APM, but because of my general bearishness on the high tech since late Sep) and I am now looking at a stock that normal "value" investors will look at as attractive based on PE, P/S and price to book. I realize that looking at these numbers is looking at the rearview mirror, yet, in view of the transition in which the company is, can you or anyone estimate what would these values be let say six month hence (at current prices)? TIA Zeev

To: Don Earl who wrote (11139)	12/26/1997 8:54:00 PM
From: T Bowl	Read Replies (1) \| Respond to of 12298

Lone Bull - It's nice to see you still have some enthusiasm left. I personally think that is why the stock price is slowly working it's way down(some people just find the whole situation hard to stomach and are holding the price up) Just a few comments about your recent post: <<I think I've figured out where the -.78 came from>> Your #s work out, but the ANALysts are better than that. Some of them might be bozos, but they're probably better than you and me. And they have access to a lot more info. You have to start giving them some credit IMO. As much as I hate to admit, crunching the #s to forecast earnings is very tough, esp with little guidance from the company. I do believe they do make a decent attempt at it. I've posted before that I cannot figure how they arrive at ($0.78). But it's a # somebody is comfy with, I'm convinced they don't make them up. Also, remember, the estimates will NOT include one-time charges. I think we can assume the following in a model: 1) R&D will be AT LEAST what it was last Q $14.8mil probably a lot more going fwd. They have to increase it. 2) SG&A will be around $2mil(withing $0.1mil) (They can't reduce it much, it's only $0.06/share now) 3) They won't pay ANY taxes!! 4) Net Sales will be around $80mil We do not know: 1) GMs? 2) Interest and other Exp? We could probably work out what the other income value would be, maybe. But it pales compared to the contribution to earnings that GMs make(unless you are right about all of the credit transaction blah de blah - you tell me what it should be). GMs will be the key this Q. It's impossible to predict IMO without real knowledge/guidance for the Q. Most other companies I follow give you a target GM, but Crisman won't give that to us. Let's try to figure out what the ANALysts are assuming it will be. Given the above values, I have to make the GM = (4%)(negative) That was hard for me to swallow because I've got a lot of info on a lot of companies and cannot find one Q that has negative margins for the company. It makes sense really. Why sell something at below cost. Well, the only way I can figure it, the canceled orders bit them. They paid rent, kept the lights on, paid the employees, bought material to produce $120mil worth of heads for the Q. Once the orders were canceled, the fixed costs bit them and they lost $$. On the other hand, the loss may come totally from extra R&D exp during the Q. You mentioned at one point that they might reduce that. I say they will raise it significantly. That's all a guess of course. I'm fitting the inputs to the data so I could make them read anything. But let me tell you this, if I make GMs = 26%(last Q) APM makes only $0.13 for the Q. And they won't have GMs that high. My guess is they'll struggle to see double digit GMs this Q(And my money is on negative GMs). The quicker transition to MR, the struggle with MR yields, the struggle with the 1.7TFI yields and the cancelation of the high margin 1.3GB head has cost them dearly on GMs. I really don't doubt the current expectations, but my max would be maybe ($0.40) for the Q. My money is riding on less. Even if APM comes in above the ($0.78) I don't think you'll see a big bounce. The street is looking for news now, everyone expects they will lose money, the question is whether they can produce high density MR in volume. They haven't proven that, or even talked about it recently. It's news you need now, not a little less loss than expected. If they twiddled the books to make $$ in the credit biz, then that's not going to help the value of the stock really. It'd be like a one-time charge. No real change to APMs ability to make $ in the future. A big credit may boost the stock for a short while, but the informed will stay out until they see progress.($5mil in MR rev is not progress) Don, they're not stupid. The only way they were going to increase the MR customer base was to qual then produce MR heads in vol. They did not. And it wasn't because they could and still chose not to pursue the customers. (If they did, that's an even better reason to bail out of the company!!) They HAVE NOT produced MR in volume because they cannot produce them at a cost competitive with RDRT or TDK or IBM. WDC is their only current customer because they were the only ones willing to buy the older TFI heads. todd BTW, regardless of the outcome, NO time was wasted in the research on APM; yours, mine, anyone. If I'm wrong, I'll learn from my mistakes. Meanwhile, I like your input. It makes me think, work and try harder. Think of the contacts you've gained, the methods learned and the people you have come to know. I for one think this is the perfect excuse to use the internet. I like your tenacity.