Syntax-Brillian's Future Becomes More Uncertain

Syntax-Brillian's (BRLC) future may be murkier then ever. There is still a lot of uncertainty that clouds the company. Starting with how the company blames a credit crunch in Asia for the main reason that they are lowering guidance to $170 to $180 for their fiscal Q1 when analysts were originally expecting over $240 million. It is amazing how no other companies that buy parts or use contract manufacturers in Asia have mentioned a similar credit crunch that would hinder their production capabilities. If such a problem does exist, how does the company estimate over $500 million in revenue for their fiscal Q2 if suppliers can only provided enough for Syntax-Brillian to produce an estimated $170 to $180 million in revenue for Q1? Nor do investors know how the company will secure additional working capital which the company's CEO, Vincent Sollitto, claims the company needs to finance their growth fully. It appears that an additional private or secondary offering might be necessary given tightened credit conditions.

Syntax-Brillian's future gross margins is now in question. The company claimed that gross margins would gradually improve not too long ago but now the company is predicting only 17-18% gross margins for their Q1, down from their 20% gross margins from Q4 of 07'. With lower consumer spending this year causing some shoppers to avoid more expensive luxury items such as flat screen televisions, retailers and tv manufacturers might have to further slash prices to clear inventory when the holidays near. If that happens, it is doubtful that Syntax-Brillian can both lower the prices of their Olevia LCD televisions to compete and yet still keep their current gross margins.

Syntax-Brillian's place in selling televisions worldwide is still also uncertain. Before, the company claimed that the higher margins in China was worth the 120 day payment terms. Now, after some cash flow problems along with late payments from their China distrubutor, the company backstepped and now says they will focus selling domestically and reduce their exposure in China. It is now almost 10 months after Syntax-Brillian acquired Vivitar, a digital camera company, in order to penetrade into the European LCD TV market. Yet there is still no Vivitar LCD televisions to be seen yet.

In addition, it appears unlike their Olevia televisions which contain Big Picture Technology that allows viewers to see more of a picture, Syntax-Brillian's management does not appear to be looking at the "big picture" or entire picture when perceiving their target market . The company's CEO stated during their Q4 conferene call that he does not see Vizio as one of their company's competitor. That is a very narrow when looking at the company's competition. In reality, all television producers along with manufacturers that produces plasma and DLP or other projection technology televisions are indeed competitors of Syntax-Brillian.

The rationale is very simple; when a consumer goes shopping for a new television, they generally only purchase one. It does not matter whether the consumer, buys a Vizio at Costco, a Sharp at Best Buys, a Sony in Circuit City, a Panasonic at Sears or a Olevia at Target nor if they buy an LCD or plasma, the consumer only buys one. If a shopper already bought a Vizio at Costco then they would not purchase another television whether it be Olevia or another brand. One consumer buying a Vizio or Samsung television means one less possible customer for an Syntax-Brillian's Olevia television. It doesn't matter that channels where Olevia and other television brands are distrubuted may vary. Countless shoppers at Target and K-Mart will also go shopping at CostCo, Wal-Mart, Best Buy, Circuit City and other retailers that sell televisions. The company's vision of who they are competing with and their targeted market is too narrow and often that leads to the demise of companies.

Many Syntax-Brillian bulls well claim that the company's P/E ratio of 8 makes it drastically undervalued just they were claiming the company was drastically undervalued back when the stock was at $11 and continued to do so as the stock continually fell. Given the high risk involved with the company, all the accounting errors made by the company, huge negative cash flow from operations, the constant need for financing, the company's management, the constant negative news bundled along with their conference call, no answer to why the CFO decided to abandon the company for a start-up , and all the other uncertainty clouding the company and its future, if anything the stock should be discounted further and is still overvalued.

Disclosure: Author has a short position in BRLC

Comments

[a fool:]

Please listen to Mr. Solilitto himself and paint your own picture.

www.wallst.net/audio/a...

2007 Sep 26 08:25 AM

[Bull_cat_dog:]

Articles that are written by folks who have an interest in the company hold no value in my opinion. Shorts will write negative articles and longs will write positive ones. Do yourself a favor and do your own research and make up your own mind.

2007 Sep 26 09:55 AM

[Hi_Tork:]

What a manipulating POS. Seeking Alpha articles are nothing more than avenues for bashers and cheerleaders and used to influence the weak minded, lazy psuedo investors out there!

2007 Sep 26 11:02 AM

[RC Martin:]

Samuel I enjoy reading your commentary much like I enjoy a good comic book. Pick any company in existence and tell me there isn't something you could find to be displeased with.

You want perfect in an imperfect world. Ain't gonna happen. These guys have blundered enough
to rival the keystone cops however DESPITE the fumbling mumbling and overall ineptitude, they sell more LCDs than they can produce. They still produce PROFITABLY, they continue to grow EXPONENTIALLY.

Imagine what a decent CFO and CEO could do with this firm........ I submit $4 is stupid cheap and in a few months folks will be kicking and screaming trying to get some. I concede all the criticism as mostly correct and look to that very point as a major reason to be long. They've managed this to $4 and this is frankly a fire sale in the basement.

Samuel, I'm happy to see you using your own words finally, but there isn't much meat on the bone when you write from your notes. You want to use mine.

This writer has gone long BRLC at $4, thanks for the cheap shares.

2007 Sep 26 11:38 AM

[CrossProfit_:]

Sandy Sanmina,

Are you the author's step sister or ex-wife?

2007 Sep 30 02:59 PM

[Rocketrade:]

BRLC CEO Speaks the truth:

www.wallst.net/audio/a......

Notes
Specifically mentions Best Buy as a company that needs to follow SBs business model to compete with the Costcos of the world.

Expects 150% growth over next two quarters

Will finance growth by raising working capital (referenced benefits of product and reliability) thru high demand. Was originally financed thru receivable borrowing and now are looking for a debt offering from a bank. Mentioned that there were a few that had shown interest already.

$200 Million revenue drop going forward was taken from China

Expects to move from 1 1/2 to 2% market share up to 5% in the next 2 years...~250% growth. Will achieve by borrowing against China and debt offerings.

Mentioned street reacted to SBs trouble with handling the growth effectively. Shoring up of internal and forecasting controls should be in place with recent hirings.

Much of this is rehash of CC but the key take-away I find is that he is forecasting in this soundbit that they expect a 250% growth rate for teh next two years so that leaves two options to hit that. Either grow at the 100-150% they have recently forecasted for a couple of quarters and then 300% for subsequent quarters or grow at 250% for every quarter going forward and smach the Wall Street guidance from the CC.

Knowing that he has a distaste for the shorting that has occured with regards to this stock I suspect it is the latter. At the very least (again, if he hits the targets mentioned here) there will be astounding growth no more than 2 quarters out.

If I were short this would make me a bit nervous. What happens when he drops the hammer saying that financing thru (insert bank of choice) has been received to finance growth?

Longs-be prepared to ride a rollercoaster for at least a qtr or get out
Shorts-keep an eye on it or get out.

2007 Sep 26 07:00 PM

[Rocketrade:]

Must Read:

collegeanalysts.com/?p...

2007 Sep 28 12:59 AM

[eninenin:]

Must read:
An Interview with Vince Sollitto, Chairman and CEO of Syntax-Brillian.
September 27th, 2007 by James Cullen.

collegeanalysts.com/?p...

2007 Sep 29 11:13 AM

[Rocketrade:]

In plain English, Vince's excellent interview by James Cullen of College Analysts made the following points:

- He things Jim Cramer is a clown ....just an irrelevant entertainer.

- He believes that shorts will eventually be fukked and he will be the first one in line. He knows the shorts game better than anyone I've seen before. And the best way to beat your competition is to know their weaknesses and strengths to mount a painful and deadly strike against them....at the right time...when they least expect. Rest assured that he has a plan for that. Italians don't get mad...they get even.

- He mentioned that credit conditions are starting to improve and most importantly that several financial institutions are more than willing to lend BRLC money because it is clear that by reading the 10-K BRLC is a safe bet. This is because every dollar that BRLC invests producing LCDs yields a very healthy return. BRLC might have to pay a little higher interest rate than they would like but the benefits of getting their hands on cash far outweighs a higher interest rate. I believe that we will have some encouraging financing new soon.

Here is Cullen/Vince's excellent and powerful interview:

collegeanalysts.com/?p...

2007 Sep 30 11:04 AM

[Rocketrade:]

Nice Video clip on msn money on brlc

video.msn.com/?mkt=en-......

Shorts manipulation..directed at seeking alph! Think before you post people..naked shorts will go to jail!

2007 Sep 30 11:07 AM

[Rocketrade:]

Investment Summary

- Driven by strong shipments, higher ASPs and a robust gross margin, we
anticipate Syntax-Brillian will handily beat current consensus 4QFY07 (June
2007) revenue and EPS estimates of $192 million and $0.13, respectively.
Accordingly, we are introducing our post-offering 4QFY07 revenue and EPS
estimates of $208 million and $0.16. We are also issuing new CY07 estimates
of $1.08 billion and $0.79, and CY08 estimates of $1.67 billion and $1.31. In
addition, as the company continues to accelerate its receivables collection
from SCHOT, we project cash flows from operations will be noticeably positive
in 4QFY07. Further, our research reveals a huge demand backlog for Olevia TVs
and ample production capacity. As such, as the company deploys the cash it
recently raised, we anticipate meaningful upside to our new estimates. We
reiterate BRLC as one of our top picks for 2007; our target price of $15 is
based on the shares trading at less than 20x our CY07 GAAP EPS estimate, or a
modest 11-12x our CY08 EPS forecast.

Discussion

- Strong shipment of Olevia TVs into North American retail channels.
According to our latest checks, 4QFY07 shipments into the North American
retail channel are at least 20-30% higher sequentially. Drivers include
continued solid shipments into existing retailers like Circuit City and
Office Depot and accelerating shipment into new retailers such as Target,
Kmart and Sears. We estimate total 4QFY07 unit shipments will likely exceed
management s guidance of 240,000-270,000 units.

- Larger average screen size should expand ASP while maintaining robust gross
margin. Our research suggests the company continues to ship larger screens,
and the average screen size should continue to expand (recall that the
average screen size expanded from 33.26 in 2QFY07 to 34.37 in 3QFY07).
More important, average selling price (ASP) should exceed the previous
quarter s level of $645, benefiting from the larger average screen size and
fewer promotional discounts. As such, we estimate LCD TV gross margin will
remain robust at 20% (see page 3), while the blended total gross margin will
exceed 17%.

- Huge demand backlog for Olevia TVs as retailers continue to consolidate
brands. Our latest checks continue to support our assertion that demand for
Olevia TVs is well in excess of production. Further, our research suggests
large U.S. retailers are consolidating TV brands in favor of Olevia, as
nearly every existing retailer is expanding SKUs and substantially increasing
their 2H07 demand forecast for Olevia TVs. Moreover, a combination of
favorable independent product reviews and Olevia TVs being sold out at many
retail locations should convince another major U.S. retailer to begin
carrying Olevia TVs in 2H07. As such, our CY07 revenue projection of $1.08
billion may prove too conservative.

2007 Sep 30 11:18 AM

[buysideretired:]

Sandy has numerous thousands of negative posts on the Yahoo MB.
Why not for her/he/it to find another media source to spew. The market as a whole shows concern for BRLC as shown in the price.

Sandy fails to say, the new CFO just took the position actively yesterday (MONDAY). And she/he/it thought there would be changes prior to his getting in. The CEO change will help in international sales and relationships. That too has to have more than one day to find results.....
It is not as she/he/it states as "the same old management at Syntax-Brillian" it is just "the same old" Sandy. ....dag

2007 Oct 02 08:44 AM