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

To: dfloydr who wrote (1532)	5/29/1998 1:36:00 PM
From: Noblesse Oblige	Read Replies (2) \| Respond to of 3247

Hi Floyd, Though I am not sure when TFS learned of the "delays" from Motorola, my recollection from reading Raefon's earlier post suggests that confirmation came in a phone call between the two companies yesterday. I still do not view this as a major "surprise", as it appears to be a matter of a few weeks delay. Think about it for a minute. TFS has already announced that it expects the MOT business to represent 50% of its total revenues for the year. Assuming that number is someplace in the ballpark, and given the guidance the company made in its press release today (that full year business would be up AT LEAST 25% in 1998, for a total revenue level of approximately $108-$109 million), then MOT's portion of TFS revenues would be about $54-$55 million. Over a 12 month period, that suggests that monthly MOT sales should be approximately $ 4.5 million. Though it is clear that not all the digital cellphone programs that MOT is preparing to ship are affected, the second quarter shortfall is expected to be precisely that monthly amount. So...we have lost a month's worth of sales to one customer. Would you really categorize that as a disaster? I can't. Management went to considerable trouble to indicate that the Chinese facility was on track, that it would be needed in the latter part of the year to meet delivery schedules, and that growth plans are undisturbed. I don't think that is "spin." The numbers issued in the report are too specific, and management is on record with a judgement (post yesterday's call with MOT) that the full year sales will be AT LEAST 25% above 1997. A tempest in a teapot, D Floyd. Disappointing? Sure. Deadly? Hardly. For each of us it only means an additional quarter of "waiting." For management, however, this unquestionably will require megadoses of Mylanta or Maalox. The company is very vulnerable now to an unfriendly bid. Business will be going through the roof in the latter two quarters of the year (and we are one month from that time frame), profitability will be expanding smartly, the stock price is what I would consider artificially depressed, and senior management only owns about 13% of the outstanding shares. All things considered, at the moment, I am glad to be writing about this company's business instead of working inside it. Have a good weekend. PS: As I write this, the stock continues to "firm" up, and is now trading at $ 16.75, up a full point from the low. By the end of the day, I would expect to see it higher still, with the result of today's announcement ending with minimal real impact. No guarantees, D Floyd, of course, as I am merely human, and am taking an educated guess. But, for the company, honesty is the best policy, and it will end up being in all of our interests that this release came now rather than on or about July 10th, when the second quarter's numbers are actually expected to be announced.