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: geep who wrote (4130)	9/9/1998 3:30:00 PM
From: FMK	Read Replies (1) \| Respond to of 27311

geep- For the conservative numbers I just used Lev's 3000 per day for line 1 to break the company even. Anything greater would therefore make the company profitable. The burn rate is about $20 million per year, perhaps less since some major equipment has been paid for. 2 shifts x 2400 = 4800 or 1800 more than required to be profitable. The assumption is that each additional 3000 batteries per day results in $20 million profit. 1800/3000 x $20 million equals $12 million or about $0.44 per share. For 3 shifts it works out to 4200/3000 x $20 million equals $28 million profit/27 million shares or about $1 per share. I admit its rough, but its an engineer's way of crunching numbers. We haven't seen many accounting types post their computations here, although I have invited others to post their earnings projections based on machine capacities. You may remember that Mooter has posted his conservative estimate of $1 per share earnings per production line. As you may recall, his numbers and mine are based on dozens of conversations with the company and information gathered over a very long period of time. Some of my calculations resulted in higher earnings than Mooter's, but I am comfortable with his $1 per assembly line, neglecting joint ventures and other revenue sources. Regards, FMK

To: geep who wrote (4130)	9/10/1998 1:06:00 AM
From: kolo55	Read Replies (1) \| Respond to of 27311

I have a different interpretation on the numbers... that basically comes to a similar conclusion. Battery Pricing First, we need pricing on the batteries. Using a 45 watt-hour battery at $1.65 per wH manufacturer's pricing is $75 per laptop battery. Note, there are recent indications that pricing could exceed $2.00 per wH for laptop batteries, so this pricing is conservative. Also there indications that the new cells are better, so that three cell laptop batteries may be able to store as much as 60 wH, and four cell batteries 85 wH. For larger batteries, the price per wH will be lower, but we could see pricing over $100 per battery. I suggest using $75 as a conservative number until we get further confirmation of improved storage capability. Cellphone batteries will likely be in the same range per wH but Valence's cellphone batteries will store about 5 wH. Check this link out for manufacturer's pricing on Ultralife's cellphone batteries: techweb.com The Ultralife batteries store only 3 wH (0.8 A-hr times 3.7 volts) and fully assembled will cost between $12-15 per battery to manufacturers. This works out to about $4-5 per wH. However if final packaging costs about $3-4 per unit, then the cells will be priced around $3 per wH. Gross Margins Next we need to look at gross margins. Valence expects to breakeven at 3000 laptop batteries per day from line 1 (some recent info indicates that this breakeven occurs at a much lower rate). This production rate is around a million batteries or $75M per year. That means that line 1 will need to generate about $20-25M in net profits to cover SG&A and R&D, and perhaps another $10M to cover depreciation, taxes, and interest. If the gross margin is around 50%, the numbers work out. A gross margin of 50% seems reasonable and conservative for a new product like this. This means that the material, labor, maintenance, and utility costs of running the NI plant will be around $37M. This also seems reasonable. Now if the company can sell 2M laptop batteries per year, then much of the gross margin proceeds from the second million will flow to the pre-tax bottom line, even allowing for some increased overhead and depreciation. We could easily see $30M from the second million laptop batteries, and this of course is over $1 per share. Capacity issues and Market Size Now, I understand the capacity of one of the high speed Italian lines is at least three times line 1. So if one of the high speed lines is set up for laptops, then the company should have enough capacity to make at least 8M laptop batteries per year. However, I don't believe that they can sell this many that fast. My guess is initial production and sales in the 1.5M per year range ramping to maybe 3M per year rate over the next year. Fred expects a much faster ramp. One of the Italian lines will produce cellphone batteries, and could produce on the order of 10M cellphone batteries per year. Using $1.65 to $2.00 per wH and assuming 5 wH batteries, then the unit pricing will be about $8-10 per battery. So each cellphone line could generate $80-100M per year in revenues. Valence expects to have 5-6 lines in place by the end of the year (at least one going to the Korea JV). The numbers get to be too optimistic using this capacity, so I'm just looking for 3M laptop batteries annually in my estimates by the end of 99. This is enough to generate some pretty good earnings. Paul