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Technology Stocks : Zitel-ZITL What's Happening -- Ignore unavailable to you. Want to Upgrade?

To: port_mgr who wrote (17250)	10/6/1998 7:28:00 PM
From: Daniel Chisholm	Read Replies (2) \| Respond to of 18263

Matridigm "processed" about 60 MLOC to date (they didn't specify if this was date finding & fixing, or validation of already-converted code -- I'll assume that whatever the mix was, it is representative of their future order mix) Matridigm reported revenues of $3.8M for the nine months ended 30 June 98. This seems to be substantially less than $1 per LOC, which used to be a much-touted number. This seems to suggest to me that Matridigm may be hard pressed to charge even 10 cents per LOC for whatever service it is that they are performing, even considering that they have probably offered generous terms to their initial customers. This then suggests that the possibility of them earning astronomical net profit margins (40%, 50%, 70%) is increasingly unlikely, and more ordinary, businesslike net profit margins of 5% to 10% are more likely to be achieved. If they bill 10 cents per LOC and earn a net profit of 1 cent per LOC, they need to remediate 8,000 MLOC in order to earn the quoted figure of $80 million or so that Zitel paid for them, just for Zitel to break even. In order to justify the present $3.xx share price of Zitel (call it a market cap of $120M on 40M shares), and earn a 60% return for investors between now and 2000 (i.e., be able to sell out of the shares for $5), they would have to process more like 20,000 MLOC (revenue of $2,000M, earnings of $200M). How would their revenue have to ramp in order for them to achieve this? Let's say they recognized revenue, in the quarter just ended, of $4M (i.e, a bit more than they did in the preceeding 9 months). And let's say they triple revenue every quarter: 98Q3: $4M 98Q4: $12M 99Q1: $36M 99Q2: $108M 99Q3: $324M 99Q4: $972M 00Q1: $500M (call this "leftovers") ----- Total: $1956M OK, so this is about the sort of revenue growth you need to be able to sell your $3 Zitel shares for $5 or so in 2000. Does this look like a realistic, achievable revenue growth model? - Daniel