Syntax-Brillian Disappoints Again

Syntax-Brillian (BRLC), makers of the Olevia LCD televisions, surprised investors yet again with more disappointing news on the day the company scheduled to release their earnings. The company was originally scheduled to report their Q2 of 2008 earnings after hours on Monday, February 11, 2008. However, Syntax-Brillian announced in the morning that the company needs additional time to complete its financial statements for its second fiscal quarter ended December 31, 2007. As a result, the company has to delay reporting their earnings. Following the news, shares of Syntax-Brillian fell 14.5% to close at $1.94.

This isn’t the first time of such an occurrence. Just on September 11, 2007, the day the company was scheduled to announce their Q4 of 2007 results after hours, the company also announced that they have to delay reporting their earnings in the morning. The cause back then was because the company had a last minute notice of an accounting error in income taxes related to the and accretion of discount on redeemable, convertible preferred stock. This time, the company stated that they need “additional time in order to evaluate its accounting treatment related to its tooling deposits.” Having to delay reporting earnings two out of the last three quarters because of accounting problems is a sign of the company’s poor internal control and their accounting deficiencies. In addition, there is already much clout surrounding the company’s tooling deposits with Kolin, Syntax-Brillian’s main contract manufacturer and a major shareholder of Syntax-Brillian. Back when Syntax-Brillian conducted their secondary offering in May of 2007 for around $127 million, most of the proceeds from the offering went to Kolin in the form of tooling deposits.

Syntax-Brillian also declared in their press release that the company will repurchase $99 million worth of televisions from their China distributor, South China House of Technology [SCHOT]. SCHOT had a history of continuing late payments to Syntax-Brillian for an extended period of time even though they had extremely lenient payment term of 120 days. It now appears the reason behind the late payments was because SCHOT had trouble selling Syntax-Brillian’s Olevia LCD television. Syntax-Brillian stated that the cause for their repurchase was because there is a delay in building the Beijing Olympic facilities which caused a large number of LCD TVs already sold through the company's distributors in China to not be deployed. However, with the Olympics in China coming up in just six months, it doesn’t seem probable that the Chinese government will not have the facilities ready in time for the Olympics.

Another problem might be that either the company overestimated demand in China or they were “channel stuffing” in China because of the higher margins. Even if the televisions could not be sold to the Olympic facilities, if there was sufficient demand then those units could have been sold to other retail outlets instead. The company announced that they will repurchase approximately 26,800 units. At a value of $99 million, that equates to around $3964 per television which appears to be significantly high. In contrast, the company also reported that license revenue from China sales through Olevia Far East, (a company that Syntax-Brillian licensed their China sales to under their new model) was approximately $3.2 million on unit volume of approximately 390,000. That calculates out to an average selling price in the region of $273 per unit.

The company also reported that total units of televisions shipped in North America for the quarter was approximately 252,000 units. It appears that the units shipped by Syntax-Brillian was actually lower during the fourth quarter of calendar 2007, the busiest shopping season for LCD television, as compared to the traditionally slower second quarter of calendar 2007. Data from iSuppli showed that Syntax-Brillian shipped 256,197 units back in Q2 of 2007. Back in Q2 of calendar 2007, Syntax-Brillian had the seventh spot in terms of market share for LCD televisions in North America and only trailed Sony, who had the sixth spot, by 7180 units shipped. However, in just two quarters, Sony has made tremendous strides as data from DisplaySearch shows Sony (SNE)

now claims the number one spot in LCD television in North America. On the other hand, it seems that Syntax-Brillian’s Olevia brand failed to gain any ground.

Disclosure: Author has a short position in BRLC

Comments

[Ben Around:]

I recognize the pattern of poor P.R. by BRLC, as noted by the writer. As someone who is long in the stock, I wonder what does the writer see as a price to cover his short position?

Does he think they are so poorly run that they will go out of business?
Are the books being cooked to a point that there is fraud?
Or is he just trying to get more selling and lower the price?

This article is just full of innunendo of the above without actually saying something.

Ben

2008 Feb 12 08:47 AM

[eegorr:]

Unless I am mistaken, the 256K units shipped back in Q2-07 included sales in China, whereas the 252K units shipped in Q4 were outside of China (primarily in North America), with 390K units sold under license to China. In fact, previous guidance was for roughly the same number of units to be shipped in China as in North America, so the 390K number represents a significant beat of more than 50%!

That is a big difference from what you are trying to present here, shorty!

I am puzzled, as you are, about the low level of royalty income from the 390K units shipped in China, though. We will have to see what kind of explanation they give in their CC... whenever that is!

2008 Feb 12 08:59 AM

[eegorr:]

One more thing the author fails to mention here is that the delay in September, which wound up being only one day, created a tremendous buying opportunity, for a trade, at least. Remember that, on October 5th, 2007, after briefly dipping below $4.00, BRLC ran to over $5 and closed just short of that level, for a potential one-day gain of more than 25%!

Also, keep in mind that this stock has been on the Reg. SHO list for more than a year now, which represents a serious failure on the part of the SEC. Time is getting short before something is done about it, IMHO.

2008 Feb 12 09:08 AM

[retrobeast:]

BRLC is failing because I bought them. I can take any stock with potential and turn it into a failure. I have 2800 shares of this death stock bought at $5 average a share.
I can sell for another of many loses and watch it run to $10 or I can hold and watch it fall to sub $1. Either way I am screwed.

2008 Feb 12 11:06 AM

[Carson Allen:]

Actually, unit volume of approximately 390,000 refers to the actual number of units SOLD during the quarter.

The royalties COLLECTED ($3.2M) applies only to the advance portion of royalty payments, which were collected during the quarter. This amount is on the upper end of the range provided by BRLC President Li during the 11/28/07 conference call.

Under terms of the royalty agreement, they have 30 days after the end of the quarter to make final payment for the balance, so the full amount of the royalty payment was not COLLECTED by the end of the quarter.

Doesn't this make more sense than $274 per unit? But then you know that, didn't you?

Your intentional distortion of fairly simple facts undermines the credibility of your entire article.

2008 Feb 12 12:03 PM

[genetuck:]

Mr. Sanmina may be handicapped by having to write his articles for Seeking Alpha in English, instead of his native language. Maybe he could get someone to proof-read future articles before submitting them.

2008 Feb 13 04:24 PM

[Loren Paz:]

Hey Samuel, you have been admitting to be shorting BRLC ever since May of last year in your first piece on BRLC back when it was around $6. Now that is at $1.85 and 70% lower wouldn't it be wise to cover already? How much further downside do you really expect.

2008 Feb 13 07:38 PM