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Technology Stocks : TAVA Technologies (TAVA-NASDAQ) -- Ignore unavailable to you. Want to Upgrade?

To: Richard S. Schoenstadt who wrote (18571)	6/16/1998 10:07:00 PM
From: Rick Bullotta	Respond to of 31646

Richard: At present, TAVA is somewhat unique in being a publicly traded company in its particular market segment, that being primarily plant floor automation and systems integration. There are a number of other companies performing these services, but none that can be truly considered a "comparable" to TAVA. Guestimating net margin is a bit of an elusive task...mostly because TAVA's business model is still gelling. If they can effectively achieve economies of scale in their core business (which is just starting to happen, a couple years after the TAVA companies were brought together), they could grab an extra 5 percent or so of margin versus their competitors, who typically pull in 3-7 percent net after taxes. A lot also depends on the cost of sales, which indirectly depends on size of contract and whether it is new business or a repeat customer. Margin also depends a great deal on the type of work being performed for the client...the closer one gets to the plant floor devices, the more "commodity-based" the services get, competing with independents at $50-75 an hour. Also, design and consulting phases of the project tend to command higher rates than the implementation phases (interestingly, with less risk as well!). As you move closer to the MES and supply chain management layer, rates move through the roof, from $125 and up (and up!). Currently, however, TAVA is still nascent in this area and any significant movement to focus on this "sweet spot" is all talk for now (though it is something I have been encouraging TAVA exec mgmt to do for quite some time). Long winded way of saying, "it depends"...<g> I think it reasonable to expect TAVA, with 500 or so engineers post Y2K, to command somewhere in the 5-10 percent net on a core business base of $125-150 million (around 0.30-0.60 a share after Y2K). In the interim, the high margins of Y2K work (due to high rates and low paid staff, along with lower cost of sales) will skew results in the short term, along a similar order of magnitude to Hannifen's estimates, though I think the '99 numbers will be short of $1.00 EPS due to ramp up problems (whether through lost business or additional costs from subcontracting or higher wages). A lot of things have to fall into place to make all this happen, though! The other hidden risk that no one wants to discuss is that Y2K work is among the most mind-numbingly boring tasks any engineer or technical person could ever be called upon to perform...so turnover could be a problem (or else high wages or employment contracts will be needed to keep them interested). The other big danger in the SI industry is employees realizing the margins they could make for themselves by striking out on their own... Anyone's guess how it plays out! - Rick