RC Martin

Syntax-Brillian: A Classic Bottom

Joseph,

A good exchange, let's focus for one minute on the expense issue you raised. You suggest a $10MM annual savings AT BEST. An excerpt from the corporate press release follows:
"According to James Li, President and Chief Executive Officer, the decision is expected to result in a one-time non-cash charge of up to $40 million, and a reduction in operating expenses of approximately $16 million annually." You've missed by a WIDE margin.

Further more, the royalty model figures you provide are skewed terribly. On a $100MM sales the royalty will drop $3MM to the bottom line. Previously NET MARGINS were 4% or $4MM per $100MM of sales. So to apply your figure of $500MM the difference is not nearly as dramatic as you wish to have it appear, $15MM for the royalty vs $20MM for the sales method.

Now of course since the royalty method requires no capital risk and frees $400MM of capital to applications of growth elsewhere it seems a small sacrifice for the potential to capture yet another $$20MM of profits via the redirection of capital. Net net it would appear in fact to benefit to the tune of an additional $15MM of profits not the dramatic loss you portray.