Syntax-Brillian: Short Interest Up, Stock Price Down

Shares of Syntax-Brillian (BRLC) closed down 6.17% to 6.22 on Tuesday, July 24th. After the markets closed, the short interest of Syntax-Brillian was disclosed at 22.7 million as of July 13, which is a 34% increase from the previous figure of 17 million from June.

The momentum from the company’s guidance on July 16 seems to have faded and the stock has lost around half its gains from the run up that resulted from the guidance update which caused the stock to close at $6.95 last Wednesday. Shares are currently down 10% from Wednesday’s closing price. It appears that shorts and other investors alike are still highly skeptical of the growth story the company is trying to sell along with their Olevia televisions.

While the updated guidance eased some of the concerns about the collection of their overdue and increasing accounts receivables, there are still some issues that aren’t addressed. One concern constantly raised is the reliance on the price protection and the rebates from Kolin, the largest share holders of Syntax-Brillian. It appears the rebates are necessary for the company to sustain their 15-17% gross margins. The company has received from Kolin $165 million in credit since December 2005. Without them, Syntax-Brillian’s cost of good sold would be higher and gross margins lower. The dependence on Kolin for profitability still has some investors filling uneasy.

There is also the question of; in the long run how Syntax-Brillian’s Olevia television line will be able to compete with the Tier 1 name brands such as Sharp, Sony, and Samsung when the price of LCD televisions further declines? Currently Olevia televisions are attractive because of the price difference between their televisions and those of their name brand competitors. However, future declines in price of LCD televisions would reduce the price difference. Syntax-Brillian would have to find a way to protect their market share when the price between their Olevia televisions and those of their name brand competitors are less significant. Syntax-Brillian might be feeling the pressure soon when Sony introduces their budget lined of televisions to discount retailers such as Walmart (WMT), K-Mart (SHLD), Target (TGT) and Sears (SHLD). The Olevia television line is currently being sold at K-Mart and Target.

The market share picture of the LCD television market many end up resembling that of the LCD computer monitor market. Four or five years ago when a 17” name brand LCD computer monitor such as Samsung or HP was selling for between $400-$500, there were a lot of no-name and lesser known brands that were attractive to consumers because of the lower price. However, currently with the price of a 17” LCD monitor around $200 for Tier 1 brands, the majority of the market share is owned by name brands. According to the Q1 2007 results from Display Search, Samsung, Dell (DELL), HP (HPQ) and LG alone accounted for almost 49% of the desktop LCD monitor market share.

A concern in the near term is whether or not the company has enough capital to produce enough televisions to meet their updated guidance for the rest of the calendar year. Even though the company was able to collect their overdue receivables from China, it is apparent the 120 day payment term restricts the cash flow for the company. The company was highly dependent on collecting their account receivables in order to produce more televisions and was forced to conduct their secondary in May as a result. The 120 day terms might cause problems for Syntax-Brillian cash flow again and the company might have to obtain further financing.

An additional concern is while the company is selling televisions, insiders have been selling shares of Syntax-Brillian. Chow Man Kit, Syntax-Brillian’s Executive Vice President and Chief Procurement Officer, has sold 1.82 million shares of stock ever since December of 2006, with 1.4 million from the secondary offering at the end of May and the rest through automatic sales. Kolin also unloaded a million shares of Syntax-Brillian in the secondary offering. Currently due to the secondary offering in May, insiders cannot sell until 90 days after the offering. Meanwhile there hasn’t been any insider purchase activity for over a year now.

Until those and many of the other concerns are eased or proven about Syntax-Brillian, it appears that shorts and other investors are still highly skeptical of the stock and any run up is meet with a sell off.

Disclosure: Author has a short position in BRLC

BRLC 1-yr chart

Comments

[rutanju patel:]

samuel,

you seem like apaid basher.When you talk about insider selling you are taking about PPS was way high and not only that but insiders needs money too.I can say you get paid by short hedgies.By the way you are nothing but a joke.But I can say I have great fun reading you jokes,while you might scare somw weak
Longs.You and me both know Shorts at this time have already started covering.

Here is my predictions.This stock will be trading above 7.25 that is 20% higher in next 2 weeks.Now if you have any guts or shame dont ever post again because you are sick.If this stock does not go to 7.25 i will agree that you are not a basher.

2007 Jul 25 12:14 PM

[chiggins:]

okay, more ridiculous comments delivered on this site by a highly unqualified, possibly paid bashing, short poster. The statement that the stock is down as the short interest shot up to 23 million (which is over 52% of the float) is merely explaining that the pressure of the shorting has caused the drop. Barring Refco or Novastar, this size of shorting does not pay off particularly if the company is growing very quickly and is earning money has hardly been a good idea to be short for any lengthy period of time
( financial.seekingalpha...;u=87990 ). Just ask David Rocker who had 1.4 billion in 2003, now evaporated to about 400 million. Or ask anyone listening to Street.com or Herb Greenberg telling you to sell Apple at 55 or Crox at 24 or Amazon at 40, 60, 70,.etc. Th fact is these bozos were short along the way.
This article and many like it are simply tools to scare people out of their stocks and cause selling and shorting to then give hedge funds a better crater effect to cover. With the help of a market maker a hedge fund can produce FTD's and naked short with abandon in essence counterfeit the certificates through the Electronic X Clearing between brokers. BRLC has a negative interest rate to shrt at 11% meaning it costs 11% a year interst to short the stock...legally that is. Now, back to what the writer here claims.
First, the writer sites Sony and cheap TV's they'll sell at competitive prices to Olevia. That is ridiculous since Sony's costs are so high that 17% margins are not enough for them. They need over 30%. By the way in 40 years Sony has never sold at the same prices as 2nd or 3rd tier TV's. Why start now?
Second, he says the company does not have the capital to support their sales guidance. I guess he overlooks $155 million they got in the secondary and the fact that their customers pay for the products, albeit slower in Asia. And third, he states insiders selling. Well, these are not founding members and are part of the company that was bought out. Kolin still owns 5.1 million and Kit still has 5.2 million shares. The real insiders have not sold and they cannot buy stock while in a quiet period. They cannot even defend themselves against the assertions of these short articles and the shorts know that.
The key is

2007 Jul 25 01:15 PM