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

To: William Epstein who wrote (11544)	5/29/1999 4:06:00 PM
From: Razorbak	Read Replies (1) \| Respond to of 27311

Large Batch Quantities Often Lead to Decreased Profits Bill: I don't agree with your statement that small quantity runs are not profitable. This is a central fallacy of full-absorption cost accounting, and it has often led to the long-term decline of many manufacturing plants around the world. Read some of Eli Goldblatt's work (e.g., The Goal, Theory of Constraints, et al), and you will begin to appreciate how the popular accounting concept of full-absorption costing is actually a poor manufacturing policy to embrace since most set-up time is performed by direct labor manpower that is already on the payroll (whether the plant is currently producing product or not), and large batch quantities often only increase inventory rather than throughput (i.e., the rate at which a system generates money through sales). Goldblatt argues that it is critical to distinguish sales from production. While manufacturing operations traditionally measured production at each stage of production, the only throughput that counts is that which comes off the end of the line to be sold. Why? Because "the goal" of any manufacturing company is to make money. (Hence the title of Goldblatt's first book.) Mathematically, throughput is expressed as sales minus the raw material inventory content of the sales. In generic terms, throughput is a quantitative measure of the entity that the organization seeks to maximize. Unfortunately, running large batch quantities often decreases profitability rather than increasing it due to the increased carrying costs of inventories and the inherent knock-on effects on overall throughput. See the following links for more details. rogo.com amazon.com

To: William Epstein who wrote (11544)	5/29/1999 4:38:00 PM
From: Zeev Hed	Read Replies (2) \| Respond to of 27311

William, they have a problem of building "confidence" in the product performance and getting OEM committed to some unknown, that is why I suggested that smaller runs, even if not profitable would be their "marketing" expense to get into the market and build that confidence. I think that another minor problem, often associated with companies with high technological content, is not knowing when to finish the development and freeze the product's specification. That creates a situation where all the QC information accumulated over six months of qualification is always on an outdated product. I do not know if that is a real or perceived problem, but the constant announcements of new improvements (going from manganese, to vanadium and now the improved phosphate), reminds of Mexican Generals never finishing their revolution. But then, what else is new in the R&D lane? Zeev

To: William Epstein who wrote (11544)	5/30/1999 9:37:00 AM
From: Ray	Read Replies (1) \| Respond to of 27311

Bill, it is certainly a valid point that larger production runs are more profitable (assuming no inventory build-up). However, the importance of this factor depends strongly on the margins involved. With high margins, small runs can still be profitable. VLNC's customers may well be in the small margin category; but my understanding is that VLNC will, initially at least, have hefty margins. Even so, VLNC's customers would, IMO, be interested in relatively small quantities at first - to be cautious about the dependability, volume availability, and market acceptance of a new battery type. This is practical, I think, as electronics items apparently can be engineered to take various battery packs interchangebly.