Syntax-Brillian Can't Compete With Vizio

It seems that while Syntax-Brillian (BRLC), makers of the Olevia LCD televisions, is finding themselves in more and more trouble, their competitor Vizio Inc., makers of the Vizio televisions, has enjoyed more and more success and growth.

Just recently, Vizio was named as supplier of the year by Wal-Mart (WMT) on March 7, 2008. On March 24, 2008, Vizio appointed five new executives in order to keep up with the company’s growth and stride to improve efficiency and provide value to customers. On the other hand, Syntax-Brillian did finally appoint a new independent board member on February 29 after being one independent board member short since October 22, 2007. However, the company is still quiet regarding their financial crisis after disclosing last month that they were in default on over 19 covenants of their loan as mentioned in my previous article.

I have often compared Vizio and Syntax-Brillian in the past, given the fact that the two companies utilize a similar strategy of selling televisions around 30% to 50% lower then established name brands while still providing a decent quality product. You can say that Vizio is what Syntax-Brillian could have been if not for the missteps of the company. In a past article titled “Can Syntax-Brillian Compete With Vizio?”, in August of 2007, I pointed and criticized the differences between the two companies.

One major difference I pointed out was that Vizio is selling mostly in North America while Sytax-Brillian was trying to sell televisions worldwide. In this past article I wrote:

Another difference that set the two companies aside is that while Syntax-Brillian is juggling selling televisions worldwide, Vizio is highly focused in targeting North America. Vizio will have over $2 billion in sales this year to prove it. It doesn’t mean that Vizio isn’t expanding globally as the company is already selling televisions in Australia and other markets but currently they are concentrating in the United States, the most lucrative market for HDTV’s in the near term. By trying to sell their televisions worldwide, Syntax-Brillian had cash flows problems from China, which resulted in a secondary offering. The company had to purchase Vivitar to penetrate into the European market which they still haven’t done and at the same the company is risking losing market share in the US.

You can say that their decision to sell in China largely caused the current crisis. For months, receivables were overdue from China distributor, South China House of Technology [SCHOT] even with generous payment terms of 120 days. This caused cash flow problems for the company and required them to obtain more and more financing. The company assured investors they were not worried and never had to write off any of their receivables from China. Then, on February 11, 2008, Syntax-Brillian disclosed they were repurchasing $100 million worth of inventory from SCHOT. It appears that the reason for the continuing overdue receivables from China was that SCHOT could not sell those televisions and hence the required inventory repurchase. The company stated it was due to a delay in the construction of an Olympic facility.

However, that alone does not warrant a repurchase if SCHOT was able to sell the televisions to another outlet in China instead. Although the company repurchased the televisions at the $100 million they were sold at, prices of LCD televisions decrease at a fairly rapid rate. The company had the TVs reworked and shipped back to the US for sale and only listed the value of the televisions at around $61 million. The action of repurchasing the inventory would most likely require write-downs and/or the company to restate earnings in the past, which appears to be one of the reasons the company still has not reported earnings for the quarter ended December 31, 2007, which was originally scheduled on February 11. Even after taking back $100 million in inventory, SCHOT still owes Syntax-Brillian $48 million in over due receivables as of February 11. The company had not yet disclosed whether, if any, of the receivables was collected.

Not doubt the inventory repurchase from China and over due receivables was one of the reasons that the company’s lenders amended their loan to cut off credit, enforced stricter regulations, higher interest rates, as well as oversight onto the company on February 14. Seeing how the company defaulted by failing to pay down their loan and submit the required interest payment and fees on a February 19 deadline, they probably did not collect or did not collect enough of the overdue receivables.

As for utilizing Vivitar to enter the European LCD TV market, that may be on hold also. The company lenders required Syntax-Brillian to either dissolve or pledge 65% of Vivitar UK as collateral in the admended loan agreement. It might prove difficult for the company to produce televisions in Europe now given their current problems.

Another point I made in comparing Vizio and Sytnax-Brillian in the previous article is that:

While both Olevia and Vizio are sold in hundreds online retailers and both are also sold in Circuit City, it seems that Syntax-Brillian is avoiding big box stores such as Wal-Mart, Costco and Sam’s Club while Vizio is thriving in them. The margins are lower at these retailers; however the volume of shoppers and exposure is tremendous. The shoppers at these retailers, those looking for a bargain and are more budget cautious, match the targeted consumers of Vizio and Olevia.

It appears Syntax-Brillian may have made a mistake in the past by avoiding retailers like Wal-Mart and Costco. The former CFO of the company, Wanye Pratt, stated in the past that he was not too keen on the business model of Costco and Wal-Mart. However, Vizio has enjoyed tremendous success in retailers Wal-Mart and Costco that help them become the best selling LCD TV brand in North America for Q’2 of 2007 and in the top three for Q’3 and Q’4.

Recent research from DisplaySearch showed that:

Wal-Mart and the warehouse clubs will continue to be more important retail outlets for TVs. These retailers are largely responsible for Vizio’s emergence as the Number 3 flat-panel TV brand, and sales at these outlets are proving to be less seasonal than at other retailers. Wal-Mart is now the Number Two TV retailer behind Best Buy.

Consumers are now much more willing to purchase televisions from retailers such as Costco (COST) and Wal-Mart in the past. It might have been a mistake for Syntax-Brillian to have avoided these retailers and tried to enter retailers such as Circuit City (CC) and Best Buy (BBY) instead. Speaking of Best Buy, it seems after the company mentioned Olevia televisions being in Best Buy back in November, the status seems to be limbo. However, now it appears Syntax-Brillian has changed their stance regarding Wal-Mart and Costco. The company is currently selling a limited amount of SKUs in some Wal-Mart, Sam’s Club and Costco stores. The move might come too late though seeing how Vizio has already established a strong relationship with Wal-Mart and named them as their top supplier.

Vizio and Syntax-Brillian is certainly an interesting tale of two companies. While more and more positive news is coming out for Vizio, Syntax-Brillian has been very quiet regarding their current situation with their lenders and their receivables from China ever since disclosing the problems. Two companies that started out so alike and with such a similar strategy seemed to now been heading down such different paths. The question of “Can Syntax-Brillian compete with Vizio?” which I posed months earlier seems to be answered for now.

Disclosure: Author has a short position in BRLC

Comments

[teknikk7]

Your trying to make the situation sound worse than it is. "Crisis" Cmon, you are bashing the company so it's stock will go down and you will reap the rewards. Your Short position should be at the top of the story in a bold font.

[teknikk7]

Samuel did you ever answer these questions? I looked at all your previous articles bashing BRLC and couldn't find your response. Here they are again,

"Samuel, I am glad to see your bio has been changed to disclose that you are employed as an analyst for a hedge fund and, as you've done in the past, you've disclosed that you have a short position in BRLC.

There still remain questions that should be answered:

1. Your responses to comments on your 12/4/07 article on BRLC revealed that the hedge fund your work for is also short BRLC. Is this still the case?

2. The firm you work for also had a long position in Amtran, a major shareholder and manufacturer for Visio, a major competitor to BRLC. Is this still the case?

3. Will you disclose the name of your employer?

4. Is your employer aware of articles you've posted on Seeking Alpha?

5. 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.

Those that read your posts should realize that you are not only biased by your own position in BRLC but it may, in fact, be part of your job to write negative articles about BRLC.

Please take the time to provide more complete disclosure, so the content of your article can be judged fairly."

Thanks

[beyondtheverge]

Wow. What an insight. Taking the fact that Syntax sells less TVs than Visio and implying this is somehow a problem for shareholders.
Is this because the stock went above $1 your masters made you to produce this nonsense of compilations of old news and irrelevant information?

[wyzgy]

a HUGE DITTO to user 168275. you have a HUGE conflict of interest here and should negate your attempt at trying to come across with a hint of journalistic standards although i believe that term now to be an oxymoron. seeking alpha should move their venue to the comic section, maybe jokes r us...

[ct_programmer]

Just give up on it Samuel. Does anyone really heed what you say? By now, I see a link for BRLC and follow it, but if I see your name I just skip reading it. SOS.

[retrobeast]

Someone has to step up and write a positive article on BRLC. If you are really knowledgeable please do so and counter act this garbage from Samuel.

[ct_programmer]

Hey has anyone figured out why it shot up 37% the other day? The volume was much higher than normal and it was close to the closing, so I figured maybe some institutional investor bought in. But I haven't seen any details or news.

[awer]

when a no name analyst give a nonsense article without any data to back up which means the bitched stock will go up, they are the first line to those big boys

[WarrenBuffoon]

An honest analysist would not make his comments under a pseudonym.

What is he frightened off that he has to make his comments anonymously.

Although the share price has gone down substantially it has not been because of the reasons given in his previous articles so that the fall in price is fortuitous and does not give credence to his opinions

[mks4fun]

I want to commend User 168217 for an important and insightful response to your self (and employer) serving posts.

Although you DO bring up some important facts about the dysfunctional management (and questionable honesty) of the company. Something that still plagues them.

I think the BRLC 'world' might have been better served had you written about how, the 'system' pumped the stock so high, so fast.

How the brokers were promoting this stock to the cash cows (aka: retail investor) and wildly (and irresponsibly) predicting outrageous price targets higher and higher. All the while shorting it like mad.

Really, the milkers (brokers, etc.) saw BRLC as a tool to rape retail cash cows as they do all the time. Same plan, different day, different stock.

Your articles? Part of the same ole plan: First part greed, second part fear.

In the scope of things, I guess it matters little as our banking system collapses around us. Too much milking going on for too long.

[Samuel]

mks4fun, I have been criticizing the bullish analyts with overhyped, non-realistic, price targets ever since last May. In my very first piece on Syntax-Brillian; seekingalpha.com/artic... I have been criticizing the analysts who had banking relations with the company;

"On top of the disappointing earnings, the company also decided to announce an underwritten public offering for $150 million worth of shares. It also happens that many of the co-managers of the offering - Robert W. Baird & Co., Canaccord Adams, and Brean Murray - currently have analysts rating Syntax-Brillian as a strong buy, with target prices over $15. Could this be simply a coincidence?"

Most of those bullish analysts have now given up on the company and ended their coverage on the company like I mentioned in my last article.

I have been merely presenting a source of information in all my articles regarding events with the company, their competitors and the industry as a whole. People can judge the information I presented and the many other information availible to the company and make a decision for themselves on the stock. But as I said before, anyone that have read my article and made a decision to sell, not buy, or short the company's stock would of been better off then those listening to the bullish analysts.

Yes I have been shorting the company's stock and that is because I initially saw a company that had a good oppurtunity for a few years but a highly flawed business model that doesn't appear will work. To me, cash flow is king and positve earnings without adequate cash flow is meaningless. In the long run I have also mentioned I do see this company along with the many tier 2 and tier 3 brands losing out to the name brands and the industry consolidating. Recent reports from iSuppli and DisplaySearch already show that. And when more China manufacturers start directly selling in US, things will get tougher for all the competitors. Just take a look at what happended with DVD players.

Also, you make it sound like BRLC is the only stock that ever became overvalued. Stocks become overvalued all the time. Remember the mid to late 1990's. All the now no longer with us dot coms? How about recently with companies like CROX, HANS, HLYS?

Yes a lot of retail investors lose money by buying overvalued stocks but just as many or more retail investors also make a lot of money by buying stocks and selling them at highly overvalued prices.

I personally know people that have made quiet a bit buying and selling Enron and others that have bought and sold the many sub prime lenders before their collapse for a nice profit.

I along with many others realized that BRLC had become highly overvalued based on the rosy picture painted by management which we didn't beleive and took advantage of it. That is just how the stock market works.

[mks4fun]

Samuel,

Thanks for the response. I should mention that I've been short BRLC until recently. I just trade the charts and they said the only way to make money was to be short. I'm NOT saying I don't agree with your articles; I do. They are well written and bring together informatin that otherwise would have been lost in the noise.

My desire would have been for you to also write something about BRLC being 'used' as a tool to milk the cash cows: A very dangerous stock that nobody should be long in.

I said: "I think the BRLC 'world' might have been better served had you written about how, the 'system' pumped the stock so high, so fast."

You said: "I along with many others realized that BRLC had become highly overvalued based on the rosy picture painted by management which we didn't believe and took advantage of it. That is just how the stock market works."

I think sometimes things need to be said clearly vs. implied. Oh wait, you DID sprecifically say such things as copied below. Unfortunately, few who read the article will then read the responses.

seekingalpha.com/artic...

... This stock is a perfect example of a classic value trap for retail investors. Some people see they are in the LCD industry, have a decent product, believe the managements claims, the analysts' expectations and think the stock price will greatly appreciate in the future. I have been warning individuals to stay away from the company and notifying others of a good shorting oppurtunity since last May when the price was around $6.

... I can understand why some individuals refuse to believe anything negative written about a company. Retail investors often make the mistake of falling in love with a stock and cannot see nothing bad about a company while they would believe anything postive said about the company.

Well, I've now gone back and read most of your articles and the responses to those articles. Overall, a very good job of presenting the your opinions with facts and rational thought.

Now, maybe an opinion as to why the most recent short interest has increased? After all, it's a buck stock! How much more blood can they squeeze out of this thing? Isn't there a point of diminishing returns? (that's why I closed MY short position) It would seem, with the world crashing around us, that there are more profitable (and sooner) opportunities than BRLC. The weekly chart would seem to be indicating an extended sideways move with a slight tilt up. But then I always seem to have a 'soft spot' for the underdog. And I want to believe there is more intrinsic value with a digital TV in the year of the digital conversion.

[Greg Kaftan]

The responses to this article are interesting. It shows how emotionally invested people can be in a company. Mabey now that it has gotten this low, it is no longer overpriced. Saying that it is not in a financial crisis, however, is somewhat like Michael Jackson looking in the mirror and thinking he has an normal nose. He might be delusional enough to believe it but the evidence to the contrary is enormous.

Most of the people reading this could get credit card rates significantly better than the loan they were forced to accept. The listed rate is 15.5% but that is apparently on top of an $8 million up front payment on $130 million in short term money. The terms also require the sale of assets and signing over inventory to the loan company when it leaves the factory. This is hardly the picture of a company that is not in financial crisis.

When these conditions were first announced, I expected that bankruptcy would follow shortly. Most companies would have filed chapter 11 rather than accept conditions like this in the first place. Those still in this company and those thinking of buying should take a step back, look at all this objectively and determine if it is still looks like the company they originally put their money into. Unfortunately this can not be done with a lot of the company's previously published statements. As an example, their balance sheet appears to be healthy. It should be remembered, however, that the balance sheet is now six months old and contains items listed as assets that the auditors are trying to determine how to account for. It should also be remembered that this balance sheet contains accounts receivables that were repurchased and will be resold at lower levels after the expense of reworking them is accounted for.

It is true that they have a good product. If you think, however, that a financially inept company operating under these conditions is still a good investment, good luck. Unfortunately I did not listen to the earlier articles from this author but have taken my losses and moved on.

[awer]

Today's price can justify the nonsense articles

[Lucky?]

BRLC sells all the TV's they can produce. The reason is their TV"s are on par with any tier 1 manufactuer and their prices are below tier 2 prices. Everything else matters little at this point. Their previous business model was a failure, but that's old news at this point. The question is will their new one be successful?

I believe it will be, hence I'm long the stock.

Anyone short at this point is simply playing for Siverfund to pull their finance agreement. My thinking is if that hasn't happened yet it's not happening at all. Clealy Silverfund thinks BRLC is worth more alive than dead.

[Samuel]

mks4fun, you said, "Now, maybe an opinion as to why the most recent short interest has increased? After all, it's a buck stock! How much more blood can they squeeze out of this thing? Isn't there a point of diminishing returns?"

As you know, the numbers released is the total short interest. It does not show the amount of former shorts covering and new short positions being taken. Obiviously there are some shorts taking profits given how much the stock has fallen. I personally have booked a large amount of gains too and my short position is much smaller compared to its peak. Although, a lot of it was from $2.50 puts I bought almost a year ago.

Also, the analog to digital conversion might be somewhat overhyped. First of all, it only affects those that solely watch broadcast television. That means those with cable, dish, or direct TV don't even have to worry about it. In addition, many could just utilize the $40 coupon from the government and buy a converter instead. A report released a few months ago suggested that the growth rate in terms of percentage for HDTVs may have peaked already.

Warren Buffon: You said, "Although the share price has gone down substantially it has not been because of the reasons given in his previous articles so that the fall in price is fortuitous and does not give credence to his opinions."

I have been criticizing the company's cash flow problem, receivable problem with China and there unrealistic guidance which played a large part in the fall of the company's stock and their troubles.

If you refer to an article back in July, 2007; seekingalpha.com/artic...

I wrote, "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. "

Obviously, the company did not have enough capital to meet guidance as they had to slash back down just a few months later. The reason the short interest went up after the company raised their guidance is because many were betting they can't meet them which turned out to be right.


And the receivables in China did end up hurting the company again. First it caused them to obtain the 13% interest rate loan from Silver Point n November which was a new source of financing I have predicted. Then it caused them to default on the same loan. I said that the company was highly dependant on those China receivables which might lead to problems and they did.

Lucky?, the products have never been the company's problem. I personally may not buy most of their models but they do fit the need for many budget cautious consumers. However, the question is how long can they keep up the price difference between them and the name brands when prices for consumer electronics decline at a fairly rapid rate. And do you think they can stay viable when more companies in China like Chang Hong start selling directly in the US? It may end up like the DVD players market.

Obiviously if you are one of those buying BRLC at $1 or less for a speculative gamble as a small percentage of your portfolio or for a short term trade then there's nothing wrong with that.

However it is those who invested a majority of there portfolio into BRLC thinking it is a buy, hold, and retire stock or those that bought at much much higher prices, at $5+, and continue to average down with more and more shares as it falls lower and lower that should take a closer look at things.

[RC Martin]

Samuel,

How about this comparison between Vizio and Olevia? Vizio isn't very good after all, are they?

www.lcdtvbuyingguide.c...

[Samuel]

Sandy, when will you ever learn? Its never was really about the products that seperates Vizio and Olevia. It has been the company's strategy, plan, and execution. That is why Vizio has been in the top three best selling LCD brands in North America for the last few quarters while BRLC is struggling to survive.

The old adage you get what you pay for holds true. The quality of the lower end Vizios, Olevias, Westinghouses are all pretty much the same. It is more or less a commidity market. As I said before, I personally wouldn't buy most of the models from the lower end brands but they are decent for the price. It fits the needs for the more budget cautious individuals who only want a TV that works and not the best out there.

However, with the upcoming price competition, these lower end brands price attractiveness might start decreasing.