Syntax-Brillian: Why Conjecture Should Not Be Confused With Reality

It's not easy to get real when the partial facts rely upon an extreme continuum hypothesis, and when these very same partial facts raised by the same hedge fund manager who’s short interest in Syntax-Brillian (BRLC) lacks any supporting links or data that would lend any credence what so ever to his own giant leap to a dooms day conclusion. I in turn would prefer to rely upon some common sense.

Take an apple here, and an orange there, add a little distortion and I assume we could have the recipe for lemonade, but the last time I checked’s short interest in BRLC was not fairing so well.

I would not care to say Mr. Stevens view on financial matters were disingenuous, I would instead politely point out that a more analytical viewing once all the facts are in might paint a different picture. Growing accounts receivable “current assets on the balance sheet owed by customers” growing from quarter over quarter “Receivables grew $131 million” and accounts payable “current liabilities on a balance sheet owed to suppliers” growing quarter over quarter “Accounts Payables increased $76 Million” can only be viewed as negative or positive when correlated with sales during that same period. Yet the sales growth was omitted from the same article leaving a half painted portrait.

131 Million in receivables represents 170% increase in accounts receivables (assets) and 76 Million in payables represent a 127% increase in accounts payable (liabilities) Now during the same quarter over quarter they increased revenue by 155 Million, representing a 178% increase in sales. When companies enjoy exponential growth as BRLC has been enjoying, it is expected that the accounts receivables a “laggard” as long as 120 days In Asia, would increase as your sales increase. Accounts payable should in turn follow suite.

A 178% increase in sales, 127% increase in accounts payable, with a 170% increase in accounts receivables are well within the industry standards if not much better, given BRLC massive growth. Add the 8 Million in revenue that was deferred to the 3rd Quarter, and the growth of Revenue of 185% would make this a superlative masterpiece of a lean, highly efficient supply chain producing margins currently guiding at 15-17% and moving north to 20% in the quarters ahead.

There are some other issues perhaps that need clarifying such as who is really driving the cost of LCD’s down, the NYT article indicated that Olevia was playing a role in that, and indeed they are, but the real truth is that the suppliers that sell to Olevia and pass along these savings to Syntax-Brillian are perhaps the real catalyst for lower prices.

“Reality is that Olevia is not driving the prices lower, market leaders Panasonic (NYSE:MC), Sharp, Samsung, And Sony are”?

Indeed if one looks at the many panel suppliers both known brands such as Sony (NYSE:SNE), Samsung (OTCPK:SHCAY), and Sharp along with the many independent panel makers, they have been drastically undercutting each other for awhile now, and as they ramp up for even larger production, these continuing falling prices and savings are passed on to manufactures such as Olevia. This is no different then OPEC selling a barrel of oil for 28 dollars, and the critics saying that Exxon is lowering the prices. No, Exxon (NYSE:XOM) has passed along the savings; OPEC lowered the cost of oil.

Olevia, by offering a high quality product at affordable prices has indeed played a role, but the real catalysts are indeed the suppliers.

“Olevia TVs will only sell at a discount to the leading brands (Sony, Panasonic, Sharp, Samsung, etc). This is an undisputed fact”?

An undisputed fact? Now as these sales will take place some time in the future years, not being able to travel to the year 2009 myself absent a time machine. I have no facts to dispute his known indisputable fact. (Or is it wishful thinking on the Bears part?) Anyone that remembers the scrappy little Samsung years ago that had in it’s past sold at a discount and in later years became a Tier 1 player would perhaps not claim Olevia will always be sold at a discount as an “undisputed” fact.

“Circuit City is suffering from inventory mismanagement and is not making as much money on its TVs as it expected to, but rest assured it is not selling TVs below its own cost”?

The Bears must have missed the conference call and the MSNBC television interview with CEO Vincent F. Sollitto Jr. Olevia proudly stated that Circuit City did indeed pick Olevia as their leading loss leader. During the Black Friday Sale, Circuit City most certainly did sell Olevia below their own cost. This is nothing new, retailers will take a hit on limited products to bring in new clientele and although they lose some money on that particular sale, they can also interest the buyer in a new High definition DVD player, or a new Blu-ray High definition player that retails for close to $1,000.00 to go with your new Olevia high definition LCD TV?

“Though ASPs increased, gross margins at BRLC were squeezed”?

The Bears have a fact there, but they somehow omitted that the only reason margins on an overall basis were “squeezed” was the recent merger of Vivitar, and with the mix of those lower margin sales generated by Vivitar, one might see a “squeeze” but with the Vivitar sales and net subtracted, the actual LCD margins grew! Was this perhaps more wishful thinking on the part of the Bears, or simply the canvass yet again half painted?

“Bulls like to point out the number of websites offering Olevia TVs as indication of sales potential. To be sure, management is certainly making it clear that it hopes to increase itssales channels in the United States and potentially in Europe. However, what the bulls fail to note is the lack of incremental profit margin generated”?

Syntax-Brillian has done far more then simply “hopes” to increase sales in the United States; they have done so with exponential growth. Over 303% YOY reported at the end of 2ndQ and the very web sites The Bulls are proud of, not only show the Olevia brand as being listed for sale, They show that the Olevia brands are the “Top” sellers outselling such brands as Sony, Sharp, Panasonic and has retained the number one seller spot for over 30 consecutive days. On line retailers such as Target, Olevia is found not only front and center, but as Top Sellers.

Most recent additions for online sellers for Olevia include,,,,,, to name only a “few” of the most recent added in the last 30 days.

As Margins continue to move north to the projected guidance growth of 20%, I would say “lack” of profit margin generated is not an accurate statement. And again it would appear that the Bears “wishful” thinking is being reported as fact, when the only indicators to date show the Margins are growing and guiding higher to 20% by years end.

“It is important for investors to understand that Syntax-Brillian does not have an inherent cost advantage or differentiation in the market”?

Now why is that important? I have no idea, and no idea as to where this conclusion came from, and I can only assume it is once again wishful thinking, or should I say a wishful conclusion to a story yet not written? Perhaps the Bears missed a very significant cost advantage on Import taxes Syntax-Brillian does not pay as the TV sets are assembled here? And the significant tax burden that is placed on the remaining market? Is the coveted Consumer Best Buy Rating awarded to Olevia not a differentiation in the market, when so many are unable to achieve such honors? Is the cost effective and highly strategic linkage with ESPN and AEG shared by another in the market?

Olevia certainly has a unique business model, one that names such as Sony and Sharp are looking to duplicate right here in the United States.

“Without the subsidies from Kolin, or the favorable supply terms (typical only when capacity is in over supply), Syntax-Brillian lacks the financial wherewithal to compete with the leading LCD manufacturers.”?

I think the Bears have gone beyond wishful thinking on this one. As a strategic partner with Kolin, and each company holding a stake in the other, Syntax-Brillian is not receiving so called favorable supply terms, and if anything they are slightly less favorable then the supply terms they receive from their panel suppliers. But again, if suppliers were to raise the price, it would be like OPEC raising the price of oil to 58.00 dollars and the Bears claiming Shell will be unable to pass on the cost to consumers, and Shell would be unable to compete with Exxon. Should the very same suppliers that have driven prices down, raise them, it would affect the entire industry and not Syntax-Brillian alone.

Suppliers increasing or lowering prices have nothing to do with a company’s financial wherewithal, and that term would have been better suited when addressing Syntax-Brillian’s future growth

Will Syntax-Brillian be limited this 3rd quarter to grow revenue year over year from 45.7 Million to 165 Million representing only 367% YOY growth?

As hard as it may be to believe, the Bears greatest hopes are that Syntax-Brillian will “only” grow 367% YOY this quarter. And this should tell you how sad the Bears camp has become. But it is a legitimate question and without additional credit lines to fund the receivables a growth limitation that Syntax-Brillian does indeed appear at this time to be limited to “only” 367% YOY. Current credit limits on December 18th 2006 and January 03, 2007 were raised on a combined "additional" total of 69 million dollars. If history has taught us anything, securing credit when you are funding receivables for companies such as Circuit City, Target, Home Depot, Radio Shack,, Kmart, ABC Warehouse, well I think you get the picture. When fortune 500 companies are your account receivables, lenders are happy to sit down with you. Betting against Syntax-Brillian securing additional credit to fund these receivables is perhaps an unwise wager, particularly now that there are two main stores Target and Kmart that have a combined total of 3,000 stores with shelf space for Olevia LCD televisions. I believe most Bulls are already aware, that funding these additional receivables is only a matter of time.

There are some other issues raised, but if the shorts are reduced to grasping at straws such as the less then 1% cash amount off 200 thousand being spent during a time of exponential growth and during the merger of Vivitar , then perhaps they are best left untouched. For diminishing all hopes even if they are but grass straws could be seen as uncivil and not very sportsman like conduct on my part.

Disclosure: Author is long BRLC.