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 : Emulex, What Prospects? -- Ignore unavailable to you. Want to Upgrade?

To: Greg Jung who wrote (120)	3/27/1998 8:35:00 PM
From: iceburg	Read Replies (1) \| Respond to of 788

Looks like a good strategy, out-sourcing. I agree completely. It is very expensive to run a manufacturing plant in the long run if you don't have a steady, relatively predictable thing to produce. It is very expensive to be upgrading your facility. The bottom line is that Emulex was too small do it's own manufacturing. When orders are strong you don't have enough manufacturing capability and when they weaken you have a ton of overhead and extra people. This move should free them up to concentrate on engineering and sales. I think given their contracts and the fact that FC is clearly going to ramp for real this time that they should have a higher market cap than 70M. They had revenues of 15M last quarter and a profit of $0.15 Some $5M in FC revenue. Seems to me after the move their expenses will be greatly reduced (their margins will be lower but I'm sure they did the math and figured it was for the best) Oh well, I didn't buy enough to damage me if it doesn't work out. I plan on giving them 6 months or so to turn it around. I'll double down at 7 1/2 should it get there. Steve

To: Greg Jung who wrote (120)	3/27/1998 9:03:00 PM
From: Thomas Scharf	Respond to of 788

I think the key is that about half the write-down is a write-off of excess and obsolete inventory. That has both bad and good (or at least not so bad) aspects. The bad side is the obvious hit on earnings. The better side is that it doesn't have any effect on the cash on hand or credit line because that stuff was already paid for. They are just admitting that they can't sell it so they quit carrying it as a current asset. This causes the current ratio and book value of the company to drop. I think they chose to do this now in combination with the factory closing to get all the bad news out of the way at one time. I usually look for things like too much inventory hanging around. I don't know how I missed it when I first bought emlx. It was right there in the balance sheet. I'm also a little concerned about the fact that they are carrying a whole quarter's revenue worth of accounts receivable. Does this mean they are shipping product to a lot of startups that can't pay their bills? Does this represent channel merchandise that was taken on consignment by distributors? If so, it is subject to return and if it matches up with the afore mentioned obsolete inventory they will have to take further write-downs and possibly re-state some earnings (depending on how conservative their accounting methods have been). I may call investor relations next week to ask a few hard questions. I'm in this at around $15.50 so I'm not too happy to see it under $9 today, but I still like the long term prospects for fibre channel so will probably hang on for a while to see what happens. Thomas