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

To: John Curtis who wrote (3004)	5/26/1998 12:15:00 PM
From: kolo55	Read Replies (3) \| Respond to of 27311

Lets look at end market demand. John, thanks for reposting Fred's numbers from last March, but lets look a little closer at end market demand. The laptop market is less than 10 million units per year world-wide. The numbers produced in Fred's 100% line speed case, are higher than the total original laptop market. This is too optimistic. Lets try and guestimate reasonable quantities of market share. Now I don't have the numbers, but these batteries will probably be targeted to the high end of the laptop market originally. Also Valence is only talking to two OEMs so far. Let's assume these are two of the biggest laptop manufacturers(about 10% market share each?), and that initially(within next 12 months), Valences batteries only go into their highest end units(25% of production?). Then a reasonable estimate of the annualized sales rate to these two OEMs in 12 months is: 10M units/year x 10% market share x 25% high end units = 0.25M units/year At $40 per battery, this is $10M a year in annual revenues. Of course, Valence will probably add a lot of other customers, but even if they capture all of the high end units for 50% penetration of the OEM market, then I get about 1.25M units per year, or about $50M in annual sales rate. Of course some customers will buy second batteries, but I believe a reasonable revenue run rate by early next year is somewhere between $50M to $100M annually for laptop batteries. The most optimistic sales rate would be say 80% penetration of the OEMs and a 50% penetration into their product line-up in one year. (This assumes no significant competition from ULBI, LITH, Yuasa, etc.) Then I get a 4M unit per year rate, a rate roughly consistent with 50% line speed production of the NI lines. I just don't believe the market will transition this fast. In this case you will see a revenue run rate of $160M. I support the accelerating growth curve concept mentioned on the thread. As the existing stock of laptops switch over to the new batteries, a replacement battery market will develop. And of course, these batteries will penetrate down into the product line-up, and the laptop market is growing fast at 20-25% per year. So over time we will see a bigger laptop market. But my guess is we see $50-100M revenue run rate by early next year, and maybe a $100-200M run rate for Dec 99. I figure a $100M revenue rate should support a market cap of $400M (about 16 stock price) and a $200M run rate will support a market cap of $600M to $800M (about a 24 to 30 stock price). My personal target for this stock is 20 by December 99, and it will take a lot of things going right to get there. Bigger revenues and the pie-in-the-sky stock price of 100 mentioned on this thread, will depend on penetrating the cell phone market segment. There the margins will be a lot tighter, and so I see this market cap as a quite distant shot. I'm a Valence bull, but I want to keep my wits about me, and our expectations in line with probable outcomes. Paul