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Technology Stocks : THREE FIVE SYSTEM (TFS) - up from here? -- Ignore unavailable to you. Want to Upgrade?

To: LAWREAL who wrote (1528)	5/29/1998 12:44:00 PM
From: raefon	Respond to of 3247

LAWREAL, Your point is well taken, but the source is impeccable. One might suggest that there are a couple of answers. 1)The company spoke to MOT yesterday, AFTER the DRB comments. 2)Even with todays announcement, the company should have rev's of at least 107MM and earnings around $.90, this is based on companies guidance.. These are the best answers I can provide at this moment. Regards.

To: LAWREAL who wrote (1528)	5/29/1998 12:48:00 PM
From: Noblesse Oblige	Read Replies (1) \| Respond to of 3247

To the "thread," I know it is difficult to look at today's happenings and see the silver lining in the cloud. Nevertheless, despite the fact that everyone that reads this "thread" knows that I have not been a fan of management (and some of its decisions, particularly those that relate to the promotion of shareholder interests), my own view is that you are collectively being short-sighted. Yes, there is no doubt that there was some "leakage" regarding the delays in Motorola's business. Otherwise, who can explain the way the stock traded this week? On the other hand, there have been many comments here (and I have had discussions with others) regarding the absence of production orders during the current quarter. This news may have been a "surprise", but to judge that it was a major surprise would be a mischaracterization of the situation. From the standpoint of corporate communications, there is no doubt that the company has done the right thing in issuing this release, and moreover, that it helps clear the air. Sure, it is a disappointment that the second quarter won't be "better", but the offset is that management has gone on record (despite the uncertainties involved) with a judgement that the full year revenues will be up AT LEAST 25% from a year ago, indicating that our downside probability is somewhere in the $ 108 - $ 109 million area. With $ 18.5 million in the opening stanza, and something in the ballpark of $ 22 million in quarter two, that strongly suggests (OK, it hits you over the head!) that the second half of the year will likely have revenues very close to $ 70 million. Based on my own expectations for operating margins, which should show improvement because of the efficiencies to hit on the new Chinese production (22% and 24% in the third and fourth quarter, respectively) the second half of the year will likely show earnings of about 70 cents per share. All in all, I consider it a tempest in a teapot, except for one thing... ...and that is, management clearly recognized the necessity for informing the market of the change in expectations. Frankly, I do not know the principals at TFS well enough to judge whether their decision to issue the press release was proactive (it is the right thing so let's do it now) or reactive (there has been some publicly written speculation about program pushouts, so maybe we should say something), but the issuance of the information can only serve to strengthen management's credibility going forward. Loss of a month or 6 weeks of a single customer's shipment time should not be something that has significant impact on a company's valuation, and it will not have any lasting effect on the price of TFS either. In the entire scale of investment problems, this one is more closely in line to a hiccup rather than the flu (or, as one of my own clients categorized this morning, a heart attack!). As all of you know, the stock is already reasonably friendless, has limited institutional participation, and this mitigates against any significant price risk from current levels. Moreover, when viewed rationally (rather than through the prism of distaste that has been built up over the years), 1998 and 1999 earnings of approximately $.90 and $1.50 price the shares at 17 and 11 times earnings, respectively. These shares are cheap, and represent great value to investors. Moreover, now that the future expectations are so clearly public (thanks to management's press release), there is a very heightened chance that an unfriendly bidder might want to take control at what it may view as bargain basement prices. There are no fundamental business problems here. Opportunities like this come along only rarely, and holders that can look upon this episode with a degree of proportionality will probably come to the same conclusions that I have... ...thank goodness the news is out, ...thank goodness that management has reaffirmed its China expansion plans, ...thank goodness that the second half will be as strong as it will, ...thank goodness that Motorola, having fallen further behind in its own markets, will have to play a more intense game of "catch up", ...and thank goodness that management has chosen to make disclosure in a timely way, thus improving its own credibility for the future, when it will count even more to each of us. I think all of you should give the entire problem some further consideration. Have a good day.