Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: FMK who wrote (3241)	7/1/1998 10:05:00 PM
From: kolo55	Read Replies (2) \| Respond to of 27311

These forecasts are a tad too optimistic. We've discussed the laptop market before on this thread, and I believe that 4.5M units per year is too high for the run rate at the end of the first year. According to the recent secondary filing by Ultralife, the worldwide market for portable computing devices is 15M units per year. This probably includes small pocket sized computing devices like the Palm Pilot that retail for less than $500, and wouldn't require a $140-200 battery at retail (eventual retail cost of Valence battery once assembled, distributed, and sold to the consumer). A better estimate for the laptops using batteries that contain $75 worth of Valence cells, is in the order of 10M units per year. I estimate this number based on the total number of MPU (Pentiums, K6, M6, and PowerPC) chips being sold into that market. If anyone is familiar with the semiconductor market segments, and would check or correct this estimate, I'd appreciate it. The logical first users of these batteries is the high end laptops that currently use Li-ion batteries. I estimate that Li-ion has about a 50% market share of the total laptops produced, so that drops the initial target market for Li-poly laptops to about 5M per year. But Li-ion has taken about 5 years to build up that market share. Assuming Li-poly builds at a similiar rate, then the new laptop market for Li-poly will only be about 1.5M run rate after the first year, and maybe 2.5-3.0M run rate at the end of the second year. The only reason I even use these high of estimates, is because this laptop market is likely growing more than 20% per year. So the market for OEM Li-poly laptop batteries is about 1.5M units per year. Now the ultimate customer will likely purchase one spare battery, so the total Li-poly laptop market segment would be about a 3M unit run rate at the end of the first year. A forecast higher than this requires an extremely fast market penetration, and the evidence from the Li-ion market segment growth contradicts that. Remember also that Li-ion had a much more significant performance advantage over NiCd or metal hydride than Li-poly has over Li-ion. But of course, I'm just pushing out your forecasted rate to the next year (2000), when they should eventually hit the run rate used in your forecasts. I suggest you use only 3M laptop units in your calculations for the run rate at by the end 1999. The balance of the Valence capacity will likely be composed of lower margin cell phone or videocam batteries. The laptop revenues would be about $225M annual run rate for Valence under this scenario. Next, I believe your gross margin of 50% is suitably conservative, and the operating costs are in line, but remember there are depreciation expenses and interest costs etc., not to mention startup costs for new facilities as far as the eye can see (we hope!). These will probably total about $15M per year in additional costs that need to be subtracted before making earnings projections. Finally, analysts and investors will not use untaxed earnings and apply an 'average PE' to them. It is typical in these cases for analysts to adjust earnings to a "fully taxed basis" and apply PE multiples to this number. So lets be suitably conservative, and use: $225M for the annual run rate by the end of 1999. Less Gross margin of 50%, less op costs of $25M = $87M Less $15M in P&E depreciation and interest costs = $72M Adjust for a nominal tax rate of 30% results in $50M in "fully taxed earnings" (Does anyone know what the eventual tax rate will be on earnings from their NI plant? I'm assuming that to keep these earnings out of the US is why the company is incorporated in the Caribbean, but don't know the eventual tax rate. I'm guessing N.I. will have a fairly hefty tax rate on earnings though.) Assume 24M shares out plus 10% new shares due to stock options plus 5M new shares due to dilution impact of $30M financing package. I'm using $30M because it usually costs $2-3M to put one of these deals together, and the smaller the deal, the more the legal and underwriting fees eat as a percentage of the money raised. I'm also assuming they issue preferred shares with a conversion privilege at 20% over the current stock price. Note: I may be conservative since there is a distinct possibility that they will raise funds from an 'angel' in their own midst. Berg has the financial clout to make a financing deal on his own. He's made a bundle in SV real estate. So using 31.4M shares outstanding by the end of 99, I get fully taxed EPS of $1.60 per share on a run rate basis. And I believe I've thrown everything but the kitchen sink at the company's revenue stream. Now using a PE of 20-25 gives a price target of 32-40 for the stock by the end of 1999. This seems much too high, but don't know where I'm making a mistake. Another way to look at it, the market cap at 32 with 31.4M shares out is $1.0B, about 4.5 times annual revenues at that point. This is less than the 6 times revenues the S&P sells for. Anyway, the current price is too low, if indeed the company can make the batteries and the market exists. I believe both is highly likely. All this is my opinion and speculation. Paul

To: FMK who wrote (3241)	7/2/1998 11:30:00 AM
From: tmoney	Read Replies (1) \| Respond to of 27311

fred - good summary amongst the wailing wall of those impatient folks who try and interpret all the innuendoes.Also as you realize there is no depth to the market other than those courageous market makers that will have to hang in there a little longer.wouldn't it be nice if we ran into a short squeeze later in the year?