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

To: MGV who wrote (3332)	7/12/1998 7:40:00 PM
From: kolo55	Read Replies (2) \| Respond to of 27311

At last we get to talk about the critical issues. Thanks for getting off your bandwagon long enough to talk about the important issues regarding the company's survivability and growth prospects. First, can the company mass produce the batteries? Based on the comments made by the CEO in the last two conference calls, this answer is probably yes, but still subject to some risk. In the May call, he said the critical path issue now is marketing, not mass production, implying that he felt relatively sure the company would achieve mass production capability. But in the last conference call he responded to a question whether the NI had 'demonstrated mass production capability', and he stopped short of answering to the affirmative. Instead he said that every piece of equipment at NI has been tested in production, but not all at the same time in continuous operation yet. A final coordinated test of the line's mass production capability couldn't happen until installation of a second coater. He said that "the limit to mass production is equipment installation". He expected the second coater for NI to be delivered in the next several weeks. He said they need two coaters to mass produce continuously (these coaters are large 12 feet by 120 feet pieces of equipment). Finally he hoped to have NI producing battery samples and shipping them to customers in the next 30 days, and expected volume production out of NI by September. He also said "September is a very good estimated date for volume shipments of batteries, but this of course depends on customers." He indicated that NI was about 1 1/2 weeks behind their previous schedule. He also indicated that the technical problems have been overcome, including the technical problems that they revealed in the February conference call. All in all the indications are very strong that Valence has indeed overcome the problems with mass producing these batteries. OTOH, Ultralife has not met their own ambitious startup schedule (they expected mass production by the end of June), and their plant has some equipment similar to Valence's first line in NI. Still considering that Ultralife has not spent as much time or money on the development efforts to date, and received much of their line equipment after Valence received theirs, I suspect that ULBI is about 3-6 months behind Valence. I could be wrong on this, but here I'm just trying to determine how realistic is it to expect volume production this fall. The earliest time that OEMs would first really be realistically ready for volume quantities of the batteries is September. Based on all of the issues discussed above, I believe the probability that Valence can mass produce these batteries by September is greater than 80 to 90%. Remember also, that Valence quarantines the batteries for 30 days prior to shipment (according to Dawson's statements in the cc). In my next post, I will discuss markets, and then move to revenue projections, and profitability. I hope I have time to post on all these issues today. Incidentally, I noticed you have a background in law. Since the info I posted here was from the conference call, could I ask you whether there is a different legal standard for the forward looking information disseminated in the conference call compared to the 10K? I know that the financial results published in the 10K must be audited, and that the company is required to disclose known risks in the 10K, but aren't the forward looking statements in both the 10K and the public conference call subject to the same legal disclosure limitations? They read a disclosure statement and referred to the 10K for the risks and uncertainties prior to starting the call. But the company representatives are no freer to lie in the conference call than in the 10K, isn't that true? Paul BTW- your labeling Fred Kellet a stock manipulator was a very poor decision. If you had bothered to read his personal profile, or research his posts on this thread, you would know (with some degree of confidence) that he is a working engineer, and lost a lot of money on Valence so far. Furthermore, its easy to e-mail him and contact him by phone, and find more about him. I have. It demonstrated an extraordinary rush to judgement to try to call him a manipulator. He's simply made the investor's cardinal sin of putting too much of his money in one speculative stock, and too soon. This doesn't make him guilty of stock manipulation, and it doesn't make him automatically wrong on the longer term future of Valence.

To: MGV who wrote (3332)	7/12/1998 9:33:00 PM
From: kolo55	Read Replies (3) \| Respond to of 27311

Valence's current stock price implies that either: 1. They won't be able to mass produce the batteries- I covered this in my previous post. 2. The market isn't as big as most believe, or that Valence's batteries won't be accepted into the market, so that their market share will be small. 3. The market won't develop quickly, so Valence won't be able to sell the batteries they can produce. 4. The pricing on the batteries will be low enough, or production costs will be high enough that Valence will not make much in terms of earnings. 5. Given the slowness in the market to develop expected in point 3, and the low margins expected in point 4, Valence has run out of funds and won't be able to raise enough capital in time to survive and prosper. So the next question is: What is the market for Valence's batteries? I covered this before in a previous post: (BTW note that I put out some revenue/earnings projections in the post.) exchange2000.com Do OEMs plan to use Li-poly batteries in their equipment? We have at least three hard statements on this in the last six month. Mitsubishi has announced and is producing in very small quantities, a laptop using non-mass produced Li-poly batteries from Ultralife. Micron has announced that they expect to have Li-poly batteries for their recently released laptop in September, but haven't disclosed the source. And Samsung has announced that they have introduced a cellphone that operates on Li-poly batteries, although I haven't been able to find one of these. Meanwhile the consumer electronics press has had quite a number of articles on Li-poly batteries. But one of the most recent quotes a Gateway representative as saying that only limited volumes of these batteries will be available until next year. Some posters have interpreted this to mean that no one will be able to mass produce these batteries until next year, but that goes back to the point of my previous post. I interpret his statement to mean that the limiting factor to market penetration appears to be the battery manufacturer's production capability, not market acceptance. I conclude that its highly likely that laptop manufacturers will seek to use Li-poly batteries in their new laptops. I project that the market for laptop batteries is somewhere around 20-25M units a year for new laptop computers and spare batteries for these new computers, but not including replacement batteries for existing laptops. A 12% market share is about 3M units a year, the number I used in my posts to project revenues for Valence. Will consumers buy computers using Li-poly batteries? Based on my informal survey of laptop users, most complained about battery life. Most seem very interested in the idea of a "plastic battery". I think consumers will snap up laptops that use these batteries as long as the price is close to Li-ion batteries. Will the market develop fast enough? If the batteries represent a selling advantage for laptops, OEMs aren't going to let the grass grow under their feet. The ramp of the batteries into the market will be limited to the rate that the OEMs introduce new models designed to operate with these batteries. Based on what we know, I expect about a 4-6 month delay between samples shipped and laptops on the market. Since the first high performance samples were shipped by Valence in May, I expect laptops on the market this fall. The ramp to 3M units a year will take maybe a year, but if market acceptance is quick, it could happen much faster. This is almost impossible to predict, but over the long haul I don't think it matters. In five years, Li-poly will likely have at least a 50% market share of a laptop battery market likey to be in the 50-60M range. Whether Valence hits the 3M production rate by this December, or next December, the trend is up over the next several years big time. As for competition, many of the supposed competitors for Li-poly are concentrating on batteries for automotive or very small power batteries. We only know of several companies close to producing laptop batteries, with ULBI and VLNC the closest. Competition won't be an significant factor for at least one year, and I'm guessing three years given the problems VLNC and ULBI have encountered commercializing this technology. Will the pricing on the batteries will be low enough, or production costs will be high enough that Valence will not make much in terms of earnings? The price per battery of $75 that Fred and I used in our posts is based on the existing battery market and the storage capacity for the Valence battery. In fact, it might be a bit low. You're fighting a free market price if you argue for a lower price. The production costs are more difficult to estimate, but I believe the costs I put out aren't too far out of line. A before tax net margin of 20-30% for a new tech product isn't unusual. In any case, 3M units at $75 per battery is $225M in annual revenues, and this implies the current market cap is quite low compared to this revenue stream, especially since this the future growth looks great. Given the slowness in the market to develop and the profit margins, will Valence run out of funds and not be able to raise enough capital in time to survive and prosper? I don't think this is going to happen. Valence has several well heeled investors on the BOD, and I feel they can raise the money if need be. Investigate the backgrounds of the board members, and look at their net worths. Remember Berg is their largest shareholder, and has a huge interest in seeing the company succeed. Valence really hasn't needed money until now, and the actions of the management in ordering line 4 and hiring new employees isn't consistent with a company who doesn't have access to capital. Also in the conference call Dawson said that financing will not be a problem, and when financing is completed, it will be announced. I expect an announcement in the next 2-3 weeks. In summary, I believe the stock is trading at these levels because of all the prior problems and history surrounding the stock. There are quite a number of problems that on the surface would turn people off this stock. I believe many people are overstating the risks with manufacturing, market penetration, and current assets. The recent departures of the CEO and CTO looks bad, unless one understands the situation and why these people left. The confusing info on insider trading can be interpreted negatively; unless you dig and find that the insiders who sold are still major shareholder. Also the CEO has actually exercised options long before he had to and bought shares (of course he bought the shares by borrowing money from Valence and owes his first big interest payment by the end of the year). These are all ample reasons for those who do only superficial analysis to not buy VLNC. But for the analytical investor who is willing to dig through all the information, this spells opportunity. As for an acquirer, I doubt the Valence insiders would sell at this point for $5 a share. They aren't selling now. I suspect the company will eventually become a target after they have proved production and market, at which point an acquirer will have to pay at least 6-7 times revenues. Paul