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