Tristan Gerra, an analyst at Robert W. Baird, this morning cut his rating on flat panel television maker Syntax-Brillian (BRLC) to Neutral from Outperform, and sharply reduced hits earnings outlook for the company.
The downgrade, he says, is related to “a potential cash tightness situation late this year…due to Syntax-Brillian’s continued intensity in working capital requirements during the seasonally strong December quarter compounded by higher TFT LCD panel prices.”
Gerra notes that there is a “severe shortage” of LCD panels, with pricing likely to increase over the next few quarters. Gerra adds that he has confirmed the company’s recent assertion that there is a credit crunch for component suppliers in Taiwan. He says that the trouble is related in part to “the fall” of Taiwan TV maker Ya-Hsin a few months ago. “Local banks responded by tightening credit particularly for local businesses with U.S. exposure,” he writes. “While we have limited visibility on the credit risk of Syntax-Brillian’s supply chain partners, we believe some of them are significantly leveraged and represent an additional risk to the business model.”
Meanwhile, he also said that there are “signs of inventory accumulation” of tier-one TV brands in the U.S., while lesser brands - including Syntax-Brillian’s Olevia - remain strong.
Gerra cut his price target on the stock to $4 from $12.
He cut his EPS estimate for the June 2008 fiscal year to 36 cents from 66 cents.
Syntax-Brillian today is down 15 cents at $3.91.