Syntax-Brillian Reports 1Q Loss of $13.5 Million, Unable to Give Guidance

Syntax-Brillian Corporation (BRLC) announced a first quarter loss of $13.5 million or 15 cents per share on Thursday morning, November 8. Last year, the company earned $4.4 million for the same quarter. The loss was partially attributed to the write-off related to the company selling its liquid-crystal-on-silicon (LCoS) division because of cash flow problems.

Revenue was only $150.6 million compared to the analyst's consensus estimate of $176.5 million. According to James Li, CEO and president of Syntax-Brillian, $56.1 million worth of shipments cannot be recognized until the revenue is collected due to a shift to a new business model in China. It is surprising that company will not recognize the additional revenue given that the company had given guidance of $170 million to $180 million back on September 12th when the company only had 2 weeks left for Q'1.

The company's margins also seem to be eroding. For their fiscal first quarter of 2008, their gross margins were 13.7%. Last quarter gross margins came in at 20% while gross margins for Q'1 of 2007 was 21.2%. The gross margin for the quarter is much lower then the company's earlier targeted near-term gross margin of 18% and long-term target of 20%. The company's second quarter (September to December) is generally when television manufacturers slash prices, increase advertising and conduct other business actives that reduce margins. It would not be surprisingly if Q'2 margins came in even lower then Q'1.

However, all shareholders can do is guess since Syntax-Brillian is unable to give guidance for their fiscal second quarter of 2008 due to changes in their business model. The company traditionally gave guidance for revenue and gross margins for the next quarter in each conference call. The company had given guidance of $1.0 billion to $1.1 billion for calendar year 2008 just two months ago on September 12th. Not providing guidance now will leave the analyst on their own with their estimates and some investors feeling uneasy. Analysts currently have very lofty expectations with estimated revenue at $385.89 million for Syntax-Brillian's second quarter. Furthermore, Syntax-Brillian is also delaying to file its 10Q.

Disclosure: Author has a short position in BRLC

Comments

[Carson Allen:]

Samuel, as a comment to your 12/4/2007 Seeking Alpha article, "International Competition Between Syntax-Brillian and Vizio Heating Up," I posted the following comment. I have not yet received a response, however:

Samuel, without arguing the merits of BRLC, your responses to comments on this article reveal important facts that you have not previously disclosed.

Your responses to these comments reveal that you work for a firm (I assume a hedge fund) that has a short position in BRLC. The firm you work for also has a long position in Amtran, a major shareholder and manufacturer for Visio. As your article points out Visio is a major competitor to BRLC.

Several questions:
1. Will you disclose the name of your employer?
2. Is your employer aware of articles you've posted on Seeking Alpha?
3. Does your employer review or in any sense approve these articles in advance?

We all realize that authors who post articles on Seeking Alpha have a specific point of view, which is as it should be. Readers may not be fully aware, however, that content is subject to the same hidden agendas as many message boards.

I would suggest you provide full, clear disclosure. Thanks you.

2007 Dec 06 06:04 PM