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

To: Piotr Koziol who wrote (22166)	8/16/1998 9:51:00 PM
From: CalculatedRisk	Read Replies (1) \| Respond to of 31646

Piotr, may I direct you to Jenkins actual quote: tomorrowcast.com Quote: "When doing quarter on quarter comparisons, this can result in a decrease in revenues as pass through material content declines. Should this occur, we should enjoy a corresponding increase in Gross Margin measured as a percent of revenue." I added bold for emphasis. Actual gross margin has declined significantly for TAVA's core business. Regards, Bill

To: Piotr Koziol who wrote (22166)	8/16/1998 10:38:00 PM
From: Richard S. Schoenstadt	Read Replies (1) \| Respond to of 31646

Sorry Piotr, But you've got it wrong imo. Right now Tava's core service business is decreasing. Not just the materials component. For your argument to be valid Tava has to increase it's core service business - which it hasn't been. Also when you think about, I don't think it's self evident that material sales is all that bad or harmful - although I haven't thought it through thoroughly. But it seems to me that material sales are gravy - and to call it low margin might be somewhat misleading. It really depends on a couple of things. Let's take the case of a pc. Suppose Tava sets up a process control system which involves the use of pc's. Does Tava buy the PC itself for let's say $1000 and then charge $1100 for it, so that that the contribution to revenuen in the quarterly report would be revenues of $1100 and cost of goods $1000. I don't see how that necessarily hurts Tava overall profit picture - unless there is effort required by an engineer during the process that could be directed in more profitable manner. And it doesn't seem likely to me that there is all that much effort involved. And even if there was more profitable effort it would still be only a small improvment - imo. (If this isn't clear look it at like this. If Tava doesn't sell the pc, they are out $1100 in revenue, $100 of which is income. They don't replace that $1100 with $1100 of high margin income. They replace it with whatever the labor component involved can now generate in service revenues. Note that it is possible that the margin on the labor component involved in procuring and setting up materials could be very high margin. Imagine it takes one hour of labor costing $50 an hour. Well if we assume gross profit was $100, then net profit is $50 or %50 net margin. Which is what Tava is getting in the service business. So maybe there is no improvement or it is even possible that there is a slight degradation.) The only way Tava is going to improve it's margins- if I understand Rick Bullotta correctly - is to move into the type of work which demands higher rates. This of course is the plan. But just because someone has a plan doesn't mean they are going to be successful at. The fact that Tava's core business is declining is hardly an encouraging sign. Also the mere fact that Tava has greater exposure doesn't guarantee that Tava is automatically going to get higher margin work in areas where it doesn't currently have expertise or experience. This is a little bit like a plumber deciding he is get work in computer programming just because he's made a name for himself as a good plumber and has recently dramatically expanded the number of projects he's work on and customers he has worked for. He might get a lot more plumbing work, but I don't know why he would automatically start getting work as a computer programmer. (Yes I have exaggerated but only to make the point clear.) Also note that most of the new people Tava has hired are going to be developing expertise in year 2k - a skill which becomes obsolete sometime after the year 2k. Also note that this work has been characterized as mind numbing and you just have to wonder what quality of engineer Tava is hiring. Short term I don't think this matters. (But I thought the same at 9.) At 5 if Tava makes just .05 a quarter over the 4 quarters, they will have a pe of 25 at around $5 a share. Since there is the possibility that Tava may make a lot more, it's hard to believe the share price won't go up from here. Not to mention that last weeks stock action looked pretty good as far as setting a bottom is concerned. But long term the case for Tava being a good investment is very weak. RS