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Technology Stocks : American Power Conversion -- Ignore unavailable to you. Want to Upgrade?

To: douglas hurd who wrote (2012)	4/25/1998 7:02:00 PM
From: Turs	Read Replies (1) \| Respond to of 2574

The seasonality issue is easy to explain and it affects not only sequential growth from Q4 to Q1, but also gross margins in Q1, inventory levels, and overall profitability. Q4 is strong on the retail end because of Christmas. It is strong on the corporate side because departments are trying to spend all of their budgets so that they can justify asking for higher budgets for the following year. Once, Q1 comes around, the retail side goes back to normal and corporate departments have less visibility into what they may need to spend on during the year. In fact some budgets may still be getting worked out departmentally. That is why sales increase throughout the year and then drop off again in Q1. However, there is overhead associated with having excess capacity that will be used later in the year. So that hurts gross margins in the first quarter. Check them out. They normally increase throughout the year. In addition, APCC has to step up production in the first quarter in order to be ready for Q2, when rainy/stormy weather threatens power across the country....and sales of UPS devices increase. The same happens in Q2 for Q3 summer weather. So, inventories are higher relative to sales in Q1 and that ratio improves throughout the year. I'm surprised that so many people who are "investing" money in APCC (short or long) are not familiar enough with the company to have known about the seasonality which APCC has demonstrated for over a decade. Overall I thought they were pretty traditional sort of numbers from the company, with one exception: more R&D spending than I expected, which hurt the operating margin. A lower tax rate allowed them to still make the quarter. I would look for consensus performance for the rest of the year, without too much upside. But that's 25% growth in the stock price with the possibility of a little multiple expansion....and not a lot of risk. I'll take it. $1.56 for '98 and $1.87 for '99.