Value Microcap DD

[kipp440]

SWTX Intro DD

SWTX - Southwall Technologies

Company Website: http://www.southwall.com

Link to recent CC: http://biz.yahoo.com/cc/4/49044.html

Link to most recent 10Q: http://www.sec.gov/Archives/edgar/data/813619/000101540204004669/main-body.htm


SWTX Ihub board link: http://www.investorshub.com/boards/board.asp?board_id=3262

(judicialrestraint posted this on RB, great work!)
2004 implied current annual revenue run rate: 16 million in Q3, 16 million in Q4, implies 4x16=64 million run rate.

2004 display segment revenues = 3.4, 5.8, 6.5, and 6.5 for Q1-4, equals 22.2 million.

2005 increase in display segment revenues: Mgmt guided to 30-80% growth. 22.2 x 30% =7: 22.2 x 80% = 18. Guidance for three other segments is basically flat.

2005 Revenue Guidance: Annual 2004 run rate of 64 + 7 = 71 lower range: 64+18=82 upper range. 2004 revenue guidance is 58 million (11.1+14.5+15.9+16. Q1-Q4). Implies 2005 growth rate in total revenues of (71-58)/58= 22% to (82-58)/58 = 41%

2004 net margin run rate: Q3 NI equals 2.1M on revs of 15.9M. Extraordinary items: 491K of warrant expense, the last quarter for such according to management on CC; tax benefit of 298. Net 200K pick-up going forward. Equals adjusted NI of 2.3/15.9 in revs = 14.5% net margins.

Shares outstanding are 31 million. Also filed an S-8 for 5 million additional shares issuable under stock option plans. Worst-case scenario is they issue all immediately, which is highly unlikely. Nonetheless, the expected EPS based upon current and worst case diluted shares outstanding is as follows:

2005 Revs, NI at 14.5%, EPS at 31M, EPS at 36M

71, 10.27, 0.33, 0.29
82, 11.86, 0.38, 0.33

This gives a range for 2005 EPS of .29-.38. To boil it down to one number, assuming all scenarios are equally likely, best guess expectations would be for an average of those two, or .34 EPS.

Most recent news:

Southwall to Present at Needham & Company's Seventh Annual Growth Conference

PALO ALTO, Calif.--(BUSINESS WIRE)--Dec. 16, 2004--Southwall Technologies Inc. (OTCBB:SWTX), a global developer, manufacturer and marketer of thin-film coatings for the electronic display, automotive glass and architectural markets, announced today that it will present at Needham & Company's Seventh Annual Growth Conference. Thomas Hood, President and Chief Executive Officer, and Maury Austin, Chief Financial Officer, are scheduled to present to leading institutional investors on Thursday, January 13, 2005.

Where: The New York Palace Hotel in New York City

Date: Thursday, January 13, 2005

Time: 4:30 p.m. Eastern Time



SWTX - email response to questions I posed 2 weeks ago:

I emailed 3 questions to Dr. Sicco W.T. Westra, VP Business Development,Southwall Technologies

I felt that my fellow investors would be interested in this information so I am posting it word for word.


SWTX Question #1

First, it seems that the trouble that lead to the hard times was the change
from CRT technology to flat panel and plasma. Southwall had trouble with the
R&D and production of products for these new products. The company then had
to fall back, re-group R&D, re-tool plants, and now you are back on track.
(This is my simple interpretation) With this in mind I ran across an article
on a new technology called "SED's" (Surface-conduction Electron-emitter
Displays). Do you see SED's on the horizon. Do SED's use thin film coatings,
and if so, are Southwall R&D personnel working on film products for them? (I
will try to send you a link to the article in a separate email)

Sicco's response (word for word copy from email)

To answer your specific questions/comments:

1. SED - This technology has been around for some time (10 years or so) and
initially was called FED (Field Emission Displays). Sony and other Japanese
companies invested heavily into because it had many attractive
characteristics (light weight, brightness, redundancy, inexpensive, etc.).
The big problem with the technology is that it requires a very high vacuum
inside the display for the emitters to work. This can be done for a brand
new device, but as the phosphors (the little blue, green and red dots)
light-up and slowly decompose, the vacuum degrades and the display dies. A
short lifetime was the main drawback of this device and it disappeared from
the world technology stage about four years ago. Apparently Canon and
Toshiba continued to invest in it and renamed the displays "SED", partly in
the hope people would give this technology a second chance. Many of us
remain skeptical because the vacuum degradation is fundamental to this
design, but we keep a close watch on the demonstrated performance.
As far as coatings are concerned, it doesn't require any thin film coatings
within the device itself such as in LCDs or PDPs. But just like any other
display device, it could use an anti-reflective coating on the most outer
surface to enhance the visibility of the picture. As you may know, this
anti-reflective (AR) coating is the one we produced for many years for use
on computer CRTs. Consumers were well aware of the advantages of an AR
coating on their computer monitor, but when watching TV the reflections off
the glass surface didn't seem to bother them and people were not willing to
pay extra for AR coatings on TVs (Sony and Philips tried it with only
limited success on the very high-end TVs). Over the past few years, we have
tried to sell our AR coatings to the makers of LCD and PDP TVs, assuming
that for these higher quality displays, the use of an AR coating would be
less of a cost problem. Although we have been able to demonstrate that AR
coatings improve the picture quality significantly, the LCD & PDP makers
don't feel they can charge the consumers extra for this. (The price
competition in this market is extremely competitive as prices continue to
come down month by month.) Some LCD/PDP makers use a cheap, solvent based
AR coating to reduce the reflections a little bit, but think our sputter
deposited coatings are too expensive (even though these coatings perform 3 ~
4 times better than the solvent based coatings). So for now, we focus on
other coatings in the LCDs and PDPs, where the manufacturers see the value
of our films (ultra high reflective films for back lighting in LCDs and
infrared cutting coatings in PDPs). If the consumer awareness increases and
consumers are willing to pay for better picture quality, we have the
coatings ready to go.

SWTX Question #2

Secondly, are commercial building designers concerned about high energy
costs, thus inquiring more about your film products, and incorporating them
into new construction?


Sicco's answer:

2. Architectural applications of our films - In general, designers of
commercial buildings are concerned with the heat management in their
building. Most often the concern is to keep the heat out, so less
air-conditioning is needed. Our products are often selected because of
their unique performance. But since the process of making our coatings is
fairly expensive we see that our films are most often used in those cases
where the builder also is the owner. Spending more up-front and saving (on
AC cost) over time is more important to a builder/owner than to a builder
who just want to make money on the construction (and reduces cost whenever
possible). Our sales in the architectural area have been steady, but could
increase with further increases in energy cost.

SWTX Question #3

Last, and best of all, I am in the market for a new flat TV and a 17 inch
flat monitor for a computer. What brand could I buy that uses Southwall
product? I feel like I should support the company as I own some!

Sicco's answer:

3. New TV and computer monitor.
Our film is used a lot in PDPs (Plasma Display Panels), but the vast
majority is in public displays (airports, train stations, etc). Since
earlier this year our film is used in certain consumer PDP models, made by
Philips, NEC and Matsushita. The largest adaptation is by Philips, but not
all models use it. If you look at a PDP up close (within a few inches) you
can see the individual pixels (red, green and blue). With the right focus
of your eye, you can sometimes see a very fine wire running at an angle
across these pixels. If you can see it, the display uses a copper wire mesh
(that is the competing technology). Once you know how to spot wire mesh, it
is easy to see which displays don't; have a wire mesh - those units use our
film!!
You will typically not find our high reflecting film in LCD computer
stand-alone monitors, only in laptops. The backlight in a stand-alone
monitor is fairly simple in design and not very efficient (there is enough
power from the wall plug). In laptops that are running off of a battery,
the light source is super efficient and our film is typically use there
(about 70% of all laptops have a bit of Southwall coating.