Battery Supplier Going Bankrupt?

[SegSister]

http://www.statesman.com/search/content/business/stories/technology/06/17valence.html

Valence auditors issue 'going concern' letter
Austin-based battery maker has lost millions developing new technology.
By Dan Zehr
AMERICAN-STATESMAN STAFF
Saturday, June 17, 2006
Auditors for Valence Technology Inc. will include a "going concern" warning in the company's upcoming annual report, raising questions about its financial prospects.
Valence postponed the release of its fourth-quarter earnings and annual report Monday, saying it and auditors Deloitte & Touche LLP needed more time to finalize its annual regulatory filing. The company, which has never reported a profit, now plans to report its earnings June 29.
The Austin-based battery maker disclosed the "going concern" issue in a securities filing Friday. The stock fell 9 cents, or 4.6 percent, to $1.88 per share. A year ago, the stock was trading at $2.95 per share.
Valence officials declined to comment. Deloitte's auditors did not return a call seeking comment Friday.
"That's the most serious opinion an auditor could give," said Michael Granof, an accounting professor at the McCombs School of Business at the University of Texas. "That's not to say the company won't survive, but the trend is not very favorable."
Going-concern opinions often are disastrous, Granof said, because they make it extremely difficult to persuade investors or banks to give money to such struggling companies.
In recent years, Valence has operated largely on funding from its chairman and largest shareholder, Carl Berg, who has pumped more than $100 million into the company. From its founding in 1989 to the end of 2005, it had accumulated losses of about $485 million.
In its most recent quarterly report, Valence said it lost $8.3 million on $4.8 million in revenue in the last three months of 2005.
The company completed the transition of its manufacturing facilities to China over the past year, a move that has cut production costs. And it has signed deals to put its batteries in Segway scooters and Graham-Field electricity-powered wheel- chairs.
Valence makes rechargeable batteries based on a compound that is more environmentally friendly than previous technologies. It's also a more stable compound, so it can be used in larger forms for applications that require more power.
The company increasingly has targeted its products for industrial uses, such as battery-powered cars and back-up power sources for cell phone towers. It has scaled back sales of its smaller-format batteries, which it sold in consumer electronics stores as backup batteries for notebook computers.
Valence is the target of a lawsuit filed by Canadian utility Hydro-Quebec, saying the company had infringed on a patent first filed by University of Texas professor John Goodenough, which Hydro-Quebec licensed from UT in 1997. Valence disputed the claim, saying at the that time it "has a strong position with regard to our (intellectual property), and we will vigorously defend this position."

[Florida Ever-Glides]

Does Segway Inc. have a bvack-up company to produce the LIon batteries? I'm not switching from my 'reliable' Nickle Metal Hydride batteries just yet...

[bystander]

The phrase "most recent quarterly report" seems to mean this one from Feb. 9th, 2006 (this is a summary):

http://biz.yahoo.com/e/060209/vlnc10-q.html

Segway, Inc. is mentioned in a couple of places, once in the "Battery and System Sales", and once in the "Gross Margin (Loss):" parts of the items under "Revenues and Gross Margin" heading.

The report from February seems to cover data up to Dec. 31, 2005, so the latest quarterly report due to be released this past week, but postponed to later this month, should cover data up to March 31, 2006.

The term "Bankrupt" may not be applicable here. I'm not much of a stock analyst, but something seems a little slanted in this article. I find it strange that the University of Texas is mentioned twice, once with a quote from the business school and once with a note about a pending lawsuit. And the disclosure from Feb 9, 2006 is old news. Why call it the "latest"?

[bystander]

Does Segway Inc. have a bvack-up company to produce the LIon batteries? I'm not switching from my 'reliable' Nickle Metal Hydride batteries just yet...I have no idea, but I don't think anybody else makes 800 watt-hour (per pair) Saphion battery packs. Sure, there are big packs in some hybrid cars, but they are ill-suited for use in the HT due to safety issues. The more conventional Lithium-ion cells put in one enclosure, the more of a safety hazard it is. Even big laptops don't have packs over 5 lbs. - which is one quarter the mass of the pair of packs used on a HT.

The only thing that makes the large capacity packs on the HT practical and safe is the use of Saphion (lithium iron phosphate) instead of ordinary lithium-ion.

[skydiver]

Were the LIONS on the parts page of INC's website.

Because they are not there now:confused: :confused:

Or am I crazy, were they ever there?

I know they were on the mysegway.ca page, and they still are there.

The Valence news is not good, I hope Carl Berg can infuse another 100 mil.

[bystander]

Were the LIONS on the parts page of INC's website.

Because they are not there now:confused: :confused:

Or am I crazy, were they ever there?

I know they were on the mysegway.ca page, and they still are there.

The Valence news is not good, I hope Carl Berg can infuse another 100 mil.Nope, they were never listed on the main Segway, Inc. website.

The "Valence news" may be non-news. The news that is appearing on more than one site is like this:

http://www.tmcnet.com/usubmit/2006/06/12/1678326.htm

Which is a report that the quarterly report is delayed two weeks. Yes, the stock went down a bit recently, but the speculations in the report from the statesman website are just that, speculations.

See what the news is on June 29th before worrying too much.

[SegSister]

The term "Bankrupt" may not be applicable here. I'm not much of a stock analyst, but something seems a little slanted in this article. I find it strange that the University of Texas is mentioned twice, once with a quote from the business school and once with a note about a pending lawsuit. And the disclosure from Feb 9, 2006 is old news. Why call it the "latest"?

The disclosure of the going concern warning from Valence's Auditor is not old news that was disclosed in February. In fact, the disclosure was made on Friday.

http://biz.yahoo.com/e/060616/vlnc8-k.html

[macgeek]

Lets all calm down here, apple just showed a loss 2 quarters ago, and nobody was pitchin there ipods into the river. Corporate finances are alot more then just profit and loss, Put down the razor blades folks, nothing to see here..

Jonathan

[yosgof]

Valence is the target of a lawsuit filed by Canadian utility Hydro-Quebec, saying the company had infringed on a patent first filed by University of Texas professor John Goodenough...."

To infringe on someone who is just Good Enough??? Is this funny or what?

[Florida Ever-Glides]

Another company that had a contract with Segway went out of business about a year or so ago. It was the transmission maker. I hope this is not a jinx...

[cmonkey]

I wouldn't worry about it for a number of reasons.

There was a recent thread about another LION manufacturer that is using some type of nanotechnology that will allow for faster recharging.

And yet another thread about Segway looking for more than just one vendor for the same part(s).

Put the two together and hopefully, production will be more consistent, and prices will start to come down.

Besides, I already have my batteries, they're working fine, and out of warranty, so I'm not going to worry about it till I need new ones.

I figure by the time my batteries die, Segway will have more than one vendor for batteries, and maybe more than one type ot LION pack available.

I remember reading about some Nanotech based lions that Toshiba developed that can charge up to 80%+ capacity in just a few minutes.
A battery like would be fantastic for security personnel. Imagine being able to get close to a full charge in the time it takes to wolf down a lunch. That would be something.

david s

[Exclusive Estates]

well if the battery company isn't financially able to eat the cost of all their bad batteries, then segway will... which is something of a concern.

[amturnip]

Does Segway Inc. have a back-up company to produce the LIon batteries?

Even if a battery manufacturer sinks to the bottom, its know-how and its factory probably won't vanish in a flash of magic. They'll probably be sold off, to defray some of the company's debts. The new owner may continue to make and sell the product.

[polo_pro]

I hate to add to the speculation, but I just had to mention that higher Li-Ion prices is one way to handle limited (or a complete lack of) supplies. Verification of this theory could from anyone who knows how many Li-Ion batteries INC keeps on hand. A month's supply? Two months??

Other events in the real world that would substantiate this theory is how there's a backlog for months on new machines. Though I should point out that I've heard from sources that this involves a shortage of another part.

[Desert_Seg]

A couple of points:

1. When Inc raised the price of the battery they also added a full one year warranty. Nothing to do with supply and demand as the cost of the Lion Segway stayed the same!

2. Don't read too much into the news. Yes , it is slightly disconcerting but it doesn't mean the death of Valance yet. I'm sure Inc has backup plans in place and I'm sure that they aren't hanging their future on Valance!

3. Much of Valence's lost can be attributed to sunk costs such as R&D. If Valance were not able to sustain itself I'm sure a buyer would quickly step in. For pennies on the dollar they get a great technology and a going concern!

Steven

Disclaimer - I am not a Segway Employee, I do not Speak for Segway, nor do I claim to have any inside knowledge!

[joelkfla]

I am not familiar with the term "going concern" warning, so I did some research on the web, and here is something I found explaining it:



Statement on Auditing Standards (SAS) 59 requires auditors, in conducting their annual audits, to consider an entity's ability to continue as a going concern. The auditor will normally reach substantial doubt that an entity can continue as a going concern if the entity is unable to meet its obligations as they become due without:1. substantial disposition of assets outside the ordinary course of business,
2. restructuring of debt,
3. externally forced revisions of its operations or similar actions.


Before disclosing the auditor's substantial doubt concerning the entity's ability to continue as a going concern, the auditor is required to consider management's plans over the next year to meet its obligations as they become due.

[bystander]

Re: Going concern.

So when the auditors state that they will include a going concern qualification, all they are asking for, is for Valence to reveal more details about it's debt restructuring plan?

That doesn't really sound like a death knell (or bankruptcy, either). Sounds like the auditors are doing what they should be doing when a company is experiencing uneven growth.

I continue to consider that the dire statements from the statesman.com article may be "over-interpreted". Let's see what comes to light on June 29th.


SegSister,

Yes, you are quite correct that the disclosure is fresh news. I hope I didn't imply that the entire article was incorrect just because I felt the article could have been better rounded. I guess I overeacted to the use of the term "bankrupt" (which does not even appear in the article).

[fredkap]

If Segway Inc were a publicly traded company it also might receive a similar disclaimer. Both Valence and Segway are "burning" cash from their respective venture capitalists as they build their companies. Segway has an advantage over Valence in that they have the premier venture capitalists behind them, while Valence has a product that has far more uses than our Segways. Valence lost a deal to rival A123 with Black & Decker but with the increases in hybrid automobiles that market is huge. From our perspectives we have to be glad that Segway doesn't receive an allocation of batteries that is impacted because Prius sales are stronger than expected.

The most unusual aspect of Valence Technology is Carl Berg. He has personally funded Valence and he may have reached his limit as to how much good money one throws after bad money.

As stated above, the factories in China won't disappear in a bankruptcy. The only thing which would happen is a change in their ownership.

This is why I have been scratching my head with all this speculation of Segway going public. Public companies dirty laundry is visible for all to see.

Finally, any questions regarding defective batteries or prices are relatively minor to this story. The batteries are expensive and until a major auto manufacturer starts to incorporate them in their cars there won't be any volume discounts and then the company would be much more loyal to say Toyota than Segway.

Valence Technology has been invited to speak at SegwayFest in Long Beach. My speculations are based on reading the public reports not any "privileged" information. I am fairly certain that they will send at least one speaker to our event. I certainly will post when I am told of a name and title of their speaker assuming the best.

-Fred

[GyroGo]

This is why I have been scratching my head with all this speculation of Segway going public. Public companies dirty laundry is visible for all to see.


Yeah, I've been scratching the same itch. Financial analysts are more concerned with numbers than technological brilliance. And even "visionaries" are not right all the time, so who can the average stock buying public trust? Nothing beats a healthy up trend in sales and profitability.

But what else can a company do that needs a massive infusion of cash to settle up with venture capitalists, fund operations and growth when you're not able to raise it privately or borrow it, and you're confident you've got the stuff for the future? Outside of the stock gurus, are there enough people who "get it"?

There may be people who can't personally justify the current purchase price of a Seg who CAN justify the purchase price of the stock. I guess that's the $64k question.

Certainly it would be tough for the company to get a good price on the IPO. But what else do you do if you have no suitors looking to acquire you, or if the deal is less attractive (for whatever reasons) than what you think an IPO might bring?

rock and a hard place - underpriced IPO or run out of cash?


here's an idea for an IPO with balls:

INC floats an offering for the purpose of funding growth, releasing the Centaur, and acquiring Valence. won't happen, but it's like Folger's in your cup.

[ElectraGlide]

Some suppliers may come and go, but I think it's pretty safe to say that MICHELIN wont be shutting down anytime soon.

[unclejay]

I wouldnt listen to a word from auditors. The whole thing may be a tax scam, a buy short manipulation, or prelude to bankruptcy. Look at Delta Airlines ? They havent been a going concern for 15 years by above definition, yet Enron was never listed as being in danger unti the day it caught everyone by surprise.

[yosgof]

The following makes an educational reading: http://lists.webvalence.com/sites/EatingPeacefully/Broadcast.D20021119.html

The tag line is: "Henry Ford went bankrupt 3 times before he created a car that worked."

[yosgof]

The following is from the NASDAQ web site. Notice the judicial use of the word "earnings", mind you not "loss". The fact of the matter might just be that the figures seem to bee too good to be true and the company wants to double check before going through the embarrassment of first announcing and then retracting.


Valence Technology Postpones Its Fiscal 2006 Fourth Quarter and Year-End Earnings; News Release, Conference Call and Webcast to Be Issued Following Filing of Form 10-K



AUSTIN, Texas--(BUSINESS WIRE)--June 12, 2006--Valence Technology Inc. (NASDAQ:VLNC) announced today it has postponed its fiscal 2006 fourth quarter and year-end earnings announcement, previously scheduled to take place on Tuesday, June 13, 2006. The postponement provides additional time for management and Deloitte & Touche LLP, the company's independent registered public accounting firm, to finalize the year-end 10-K report.

Jim Akridge, President and Chief Executive Officer of Valence, commented on the announcement. "It is of utmost importance to Valence that our shareholders receive the most accurate information available regarding our Company's financial performance. Valence will continue its practice of releasing only numbers audited by an independent registered public accounting firm. This ensures Valence does not have to restate earnings in the future."

The Valence management team will host a live conference call and webcast to discuss fiscal year 2006 financial results beginning at 4:00 p.m. ET on Thursday, June 29, 2006. Investors and other interested parties may participate in the call by dialing 800-310-6649 at least 15 minutes prior to the call and entering pass code 7514681, or by listening to the live webcast, which can be accessed on the investor relations section of Valence's Web site, www.valence.com. A replay will be available by phone from 6:00 p.m. ET on Thursday, June 29, 2006, through 12:59 p.m. ET on Wednesday, July 5, 2006. To access the replay, please dial 719-457-0820 and enter pass code 7514681.

About Valence Technology, Inc.

Valence Technology develops and markets intelligent battery systems using its Saphion(R) technology, the industry's first commercially available, safe, large-format Lithium-ion rechargeable battery technology. Valence Technology holds an extensive, worldwide portfolio of issued and pending patents relating to its Saphion technology and lithium-ion rechargeable batteries. The company has facilities in Austin, Texas, Las Vegas, Nevada, and Suzhou and Shanghai, China. Valence Technology is traded on the NASDAQ Capital Market under the symbol VLNC and can be found on the Internet at www.valence.com.

Safe Harbor Statement Litigation Reform Act of 1995, including our statements that we are positioned to realize better execution, improve gross margins, continue to reduce production costs and expenses, realize a strong year in both customer orders and revenue and our financial guidance. Actual results may vary substantially from these forward-looking statements as a result of a variety of factors. Among the important factors that could cause actual results to differ are: the impact of our limited financial resources on our ability to execute on our business plan and the need to raise additional debt or equity financing to execute on that plan; our uninterrupted history of quarterly losses; our ability to service our debt, which is substantial in relationship to our assets and equity values; the pledge of all of our assets as security for our existing indebtedness; the rate of customer acceptance and sales of our products; the continuance of our relationship with a few existing customers, which account for a substantial portion of our current and expected sales in the upcoming year; the level and pace of expansion of our manufacturing capabilities; the level of direct costs and our ability to grow revenues to a level necessary to achieve profitable operating margins in order to achieve break-even cash flow; the level of our selling, general and administrative costs; any impairment in the carrying value of our intangible or other assets; our execution on our business strategy of moving our operations to Asia and our ability to achieve our intended strategic and operating goals; the effects of competition; and general economic conditions. These and other risk factors that could affect actual results are discussed in our periodic reports filed with the SEC, including our Annual Report on Form 10-K for the year ended March 31, 2005 and our Quarterly Report on Form 10-Q for the quarter ended December 31, 2005, and the reader is directed to these statements for a further discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements.

[jgrohol]

Umm, that's called "spin" and it's very popular when you're trying to have people view bad news in a different light. However, Wall Street sees through that sort of spin and votes with their shares (hence the stock downturn).

Whenever an auditor does something of this nature, it is not because the company is doing fabulously.

John

[SegSister]

The question that comes to my mind is if Valence goes under, what happens to the warranty on batteries that are still under warranty? Does Inc. have sufficient stock to honor warranty replacements? And is Inc. looking for a second source for lithium ion batteries? Given the uncertainty created by the going concern warning, you'd think it would be in Segway's interest to be addressing these questions.

I also have to wonder why Segway didn't look for other suppliers right off the bat? I just looked at the Valence financial statements and they are not a pretty picture. They have been losing money every quarter for as many quarters as I looked. They have over $50 million in debt. That's an awful lot of debt for a company that has only about $10 million per year in sales, even for a profitable company. But since Valence is still losing money, how will they ever pay back all that debt? They also have only a few million dollars of assets on the balance sheet. That doesn't seem like much if they own factories in China. I have to wonder about INC's judgement in chosing such a financially weak company to be the supplier of such an important component.

[Exclusive Estates]

If a broker places a hold on a stock... what does that mean?....SELL! Going Concern means you didnt sell and will feel the loss... its not a buy rating... the brilliance of technology has nothing to do with the profitability of a company... its all speculation.. but do you really think a person (Company Person) will say they are in dire straits at a Segway convention? Let think in real terms... the amount of R&D has made them upside down, the great product has problems and are needing to be replaced. This will affect a small company like segway.

[Isidore]

Even if Valence goes bust that does not mean the batteries will disappear. The company assets will be liquidated and someone will buy them. The new owner will have the patents and the technology but not the debt. Maybe Segway will be the buyer-if the technology is as great as we are told, it's got to be a good buy especially when the R & D costs have been written off in the bankruptcy!

[SegwayUtah]

Just for a bit of reference:

1. Segway uses the Valence batteries largely because they're the only "safe" large Li-ions that were/are available on the market. Unlike other Li-ions, they won't explode if you puncture or heat them up. Segway is very safety conscious.
2. Segway has a number of single-supplier vendors (or at least it seems like it from the outside). But I have also heard that they are very good at negotiations. I wouldn't be surprised if they have a guarantee on the battery technology if Valence went out of business--wherein Segway would have the right to produce the batteries themselves. I understand that Segway gracefully picked up the ball when Axicon had trouble.

Also, I think that the Valence technology is great, and I can see a lot of applications for it. They have only been well-known (and maybe only in small circles) for the last year or two, which isn't long compared to how long they've been around. A smart group of investors would likely see them as an excellent buy if they did have troubles.

I personally don't like digging into other people's financials, and I wouldn't want people digging into mine--but I'm not worried that Segway will lose the ability to have long-range batteries anytime soon. The Li-ions, as I understand from dealers posting here, have tremendously boosted sales and the ability to sell into security and other markets.

Chris

[jgrohol]

They went with Valence because they were the only battery maker who, at the time, had a safe, large lithium-ion battery available at production numbers. Since that time, other battery makers also seem to have similar products available, so there are slightly more choices now (like +1 or +2). Battery technology of this nature -- large, safe lithium-ion batteries that can be made in production quantities -- is still mostly under active development. These size batteries are nothing like what you find in your cell phone.

So I wouldn't worry about Segway... They will have some choices and alternatives if something bad happens to Valence.

John

[bystander]

Well, it's past June 29th. Here's what showed up:

http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?FilingID=4508952&Type=HTML

It's quite a bit to read through. Segway, Inc. is mentioned a few times in passing. Looks like Segway, Inc. accounts for slightly over 50% of their sales recently, the next biggest customer is 15%.

Some of the statements in the report make it clearer how close Valence is to insolvency. I haven't read it too closely, but I don't see any bankruptcy filing plans as of yet.

Stock price understandably down a bit more, June 30 close was $1.73. Back when they announced the delayed filing two weeks ago, the stock price was $1.88. A month ago, I think the stock was around $2.00. The low in the last year (Dec 05) was $1.38.

More stock stats here (http://finance.yahoo.com/q/ks?s=VLNC)

Here's an article about the market reaction:

http://www.bizjournals.com/austin/stories/2006/06/26/daily34.html

[yosgof]

According to these figures if they keep loosing at the same rate and do not find fresh capital they might go insolvent later this year.

[fredkap]

They are no where close to filing bankruptcy. They are trying to raise some of their fresh money by issuing stock. As that is not as certain as carl Berg writing a check, that is why they received the going concern disclaimer. Carl Berg has not stopped supporting the company. The company is not going to file bankruptcy. They have many great prospects of new customers of greater sales potential to Segway. They explained that it takes at least 18 months between when a company tests their product and when that new company utilizes their product. In the future, my biggest worry is that new customers could get priority of product allocation to Segway's detriment.

I should hear who they will be sending to SegwayFest in the next 10 days and that will be one of the more interesting talks at the Fest

Fred

[bystander]

According to these figures if they keep loosing at the same rate and do not find fresh capital they might go insolvent later this year.
I listened to the conference call replay accessible on the Valence website.

So far, my interpretation is that a year ago, they had guaranteed funding to cover the year. And this year they have funding for the next year, but it is not guaranteed this time.

Also their biggest single supporter, Mr. Berg, has indicated that he will continue support as long as they show growth. In spite of the risks pointed out, there are a number of indications are that they will continue to grow.

It's just that they are getting big enough that they need more than a single large supporter to continue growing, so that's what they are looking for.

[SegSister]

They are no where close to filing bankruptcy. They are trying to raise some of their fresh money by issuing stock. As that is not as certain as carl Berg writing a check, that is why they received the going concern disclaimer. Carl Berg has not stopped supporting the company. The company is not going to file bankruptcy. They have many great prospects of new customers of greater sales potential to Segway. They explained that it takes at least 18 months between when a company tests their product and when that new company utilizes their product. In the future, my biggest worry is that new customers could get priority of product allocation to Segway's detriment.

I should hear who they will be sending to SegwayFest in the next 10 days and that will be one of the more interesting talks at the Fest

Fred

They seem awfully close to me. They had $600,000 of cash at the end of the quarter, and are losing $9 million per quarter. They have $76 million in debt. I don't know how you get any closer to bankruptcy without filing the paperwork.

I listened to the conference call and heard them say Carl Berg may give them more money, but has not made a commitment to do so. That's why they got the going concern warning from the auditor, because there is no commitment. If he does plan to give them more money, why didn't he commit to doing so? I would think it would be much harder to sign new customers if they see how close to bankruptcy Valence is, and see there is no commitment for more money.

[bystander]

They seem awfully close to me. They had $600,000 of cash at the end of the quarter, and are losing $9 million per quarter. They have $76 million in debt. I don't know how you get any closer to bankruptcy without filing the paperwork.

I listened to the conference call and heard them say Carl Berg may give them more money, but has not made a commitment to do so. That's why they got the going concern warning from the auditor, because there is no commitment. If he does plan to give them more money, why didn't he commit to doing so? I would think it would be much harder to sign new customers if they see how close to bankruptcy Valence is, and see there is no commitment for more money.Look at it this way,

Previously, Valence had a 'carte blanche' relationship with Mr. Berg.

Now they are on an "allowance".

As long as the "chores" get done, the allowance will continue.

Sometimes teenagers have to be charged rent to get them to move out of their parent's house!

[SegSister]

Sometimes teenagers have to be charged rent to get them to move out of their parent's house!

Good one.:D

Now that we have a publically traded company that is a Segway supplier, we can get some insight on how sales at Segway are going. The Valence financial statments specify the percentage of their quarterly revenue that is from Segway. From these percentages, I calculated the amount of sales Valence has received from Segway over the last 4 quarters. The quarterly number for Valence sales to Segway are,

June 2005 $1,056,000 (first quarter that Saphions were available)
Sept 2005 $3,174,000
Dec. 2005 $2,793,000
March 2005 $2,101,000

It was a bit surprising to me to see the dropoff in revenue from Segway in December and March, given that Segway is talking about a 50% increase in sales. Maybe those are the slowest quarters for Segway sales?

If you assume that Valence receives $1,250 from Segway for each pair of the lions, that would mean 844 pairs of lions were shipped in June of 2005, 2,539 pairs in September, 2,234 in December, and 1,681 pairs in March of 2006.

If the price Segway pays Valence is less than $1,250, then there were more batteries shipped than my assumption, if Segway pays Valence more than $1,250, then less batteries were sold than my assumption.

Also, since some of those batteries are going for upgrades and not new HT's, the number of new Saphion-equipped Segways would be lower than the amount of battery pairs sold.

[bystander]

It was a bit surprising to me to see the dropoff in revenue from Segway in December and March, given that Segway is talking about a 50% increase in sales. Maybe those are the slowest quarters for Segway sales?
That was the topic of a question posed by an investor in the recent conference call.

The response from Valence was that Saphion sales to Segway, Inc. are somewhat seasonal, implying that the investors shouldn't worry to much about perceived drop-offs in sales.

I don't know whether Segway, Inc. buys Saphions "off the shelf" (when needed) or contracts to buy a minimum / maximum per quarter.

Sometimes arrangements are made to lower the price when certain volume targets are exceeded.

[polo_pro]

Extrapolating from the above numbers, could it be said that Segway INC sells APPROXIMATELY 7000 units per year? Somehow, I thought they were further up the acceptance curve. And at an average price of $5K that would imply $35M in annual revenue. And some of that has to go to the dealers to pay them and keep their stores open.

Sorry for the caps...I'm trying to get a ball park number and I didn't want to quibble. I'm quite happy to add or subtract a couple thousand units to these estimates. Also I'm the first to admit that trying to back unit counts out of Valence's revenue numbers is tough given the number of people who switched from NiMH to Li-Ion late last year.

[SegSister]

Extrapolating from the above numbers, could it be said that Segway INC sells APPROXIMATELY 7000 units per year? Somehow, I thought they were further up the acceptance curve. And at an average price of $5K that would imply $35M in annual revenue. And some of that has to go to the dealers to pay them and keep their stores open.

Sorry for the caps...I'm trying to get a ball park number and I didn't want to quibble. I'm quite happy to add or subtract a couple thousand units to these estimates. Also I'm the first to admit that trying to back unit counts out of Valence's revenue numbers is tough given the number of people who switched from NiMH to Li-Ion late last year.

Probably in the ballpark. Because many people were upgrading from NiMH, some portion of the battery sales by Valence to Segway went to existing units. But on the other hand, not all the new HT's Segway sells are equipped with Saphions.

[yosgof]

The Saphions are in line with the overall Segway legacy. A great product, produced after tremendous investments, which is sold at a way too high price and thus can not sell enough to become a mass consumption product.

This is a sad story.

Valence had the good sense to move production (and some of the R&D) to China. Bad for US economy and employment (although the production was moved from Ireland so not such a big loss of jobs). It probably cost them lots of money to move the production but now that they are using sub contractors, produce in a market with cheaper labor component and a re not committed to maintaining a costly production plant the running cost will be much lower and their performance will probably improve.

What about Segway?

Let’s say that they sell not 7,500 as the math implies but 10,000 units. Is this even close to a viable company?

[SegSister]

The Saphions are in line with the overall Segway legacy. A great product, produced after tremendous investments, which is sold at a way too high price and thus can not sell enough to become a mass consumption product.

This is a sad story.

Valence had the good sense to move production (and some of the R&D) to China. Bad for US economy and employment (although the production was moved from Ireland so not such a big loss of jobs). It probably cost them lots of money to move the production but now that they are using sub contractors, produce in a market with cheaper labor component and a re not committed to maintaining a costly production plant the running cost will be much lower and their performance will probably improve.

What about Segway?

Let’s say that they sell not 7,500 as the math implies but 10,000 units. Is this even close to a viable company?


What's even sadder is that as expensive as the Saphions are, Valence is losing alot of money on them. They would have to be much more expensive for Valence to break even. I don't know when they moved their production to China, but I don't remember seeing any non-recurring costs in their financial statements over the last year. Typically, a company reports non-recurring expenses separately so that investors can differentiate between continuing and one-time costs.

As far as Segway goes, I have no idea how much it costs them to make and sell an HT, so its hard to say whether 7,500 or 10,000 units per year makes for a viable company. Although its hard to imagine they are making tons of money on somewhere between $30 million and $50 million a year of sales.

[SegSister]

That was the topic of a question posed by an investor in the recent conference call.

The response from Valence was that Saphion sales to Segway, Inc. are somewhat seasonal, implying that the investors shouldn't worry to much about perceived drop-offs in sales.


I was just thinking about this again and remembered that Valence's guidance for the March-June quarter did not project an increase in revenue for the quarter. Since Segway represents more than half of their sales, it would seem they are not projecting much more revenue from Segway in the March-June quarter than the $2.1 million from Segway in the Jan-March quarter. So if the dropoff is due to seasonality, the low season must extend through June.

[fredkap]

Sis,

Valence stated that some of their June 2006 sales were deferred into the Sept 2006 quarter due to some technical issues with 2nd generation Saphions. My calcultions are closer to 10,000 units per year. Sales have been doubling every year. If Segway Inc is making a gross profit of $1,000 per machine then sometime in the next two years they will stop bleeding cashflow IF that trend continues.

The Saphions have moved the Segway from a science project to a practical tool for many applications. Dealers have empty showrooms. The results of the next year may be indicative as to whether sales growth continues to explode or not. Segway needs to move its sales from us geeks to mainstream consumers.

Patience.

Happy Fourth of July!

-Fred ( Who happens to be truly born on the Fourth of July!)

[SegSister]

Sis,

Valence stated that some of their June 2006 sales were deferred into the Sept 2006 quarter due to some technical issues with 2nd generation Saphions. My calcultions are closer to 10,000 units per year. Sales have been doubling every year. If Segway Inc is making a gross profit of $1,000 per machine then sometime in the next two years they will stop bleeding cashflow IF that trend continues.

The Saphions have moved the Segway from a science project to a practical tool for many applications. Dealers have empty showrooms. The results of the next year may be indicative as to whether sales growth continues to explode or not. Segway needs to move its sales from us geeks to mainstream consumers.

Patience.

Happy Fourth of July!

-Fred ( Who happens to be truly born on the Fourth of July!)


Fred, Happy Birthday! No wonder why they have fireworks today.:D

It certainly is possible that sales are closer to 10,000 per year instead of 7,000, but I think that is probably the high end of the estimate. Total sales by Valence to Segway in the first 4 quarters was $9.1 million. If Segway pays Valence $1,000 per pair of Saphions instead of the $1,250 I was assuming, that would equal 9,100 pairs of Saphions. If 8,000 of those 9,100 pairs went to new units and not upgrades to existing units, and another 2,000 NiMH-equipped Segways were sold, that would get you to 10,000 units.

But I don't see how you can say that sales are doubling each year. According to the article about Segway in Wikipedia, Amazon started regular sales of Segway in April 2003, and the infamous recall that revealed only 6,000 units had been sold took place 6 months later in September of 2003.
http://en.wikipedia.org/wiki/Segway

So if they sold 6,000 in the first 6 months, they were actually selling faster in that first 6 months than they are now, if 10,000 per year is an accurate estimate.

[bystander]

Amazon started regular sales of Segway in April 2003, and the infamous recall that revealed only 6,000 units had been sold took place 6 months later in September of 2003.

So if they sold 6,000 in the first 6 months, they were actually selling faster in that first 6 months than they are now, if 10,000 per year is an accurate estimate.I don't know if those recall figures are apt for sales figures. My understanding is that the "6000" figure was a "production to date" total from whenever they started making them, possibly as early as the product reveal in December 2001.

Whoever wrote the Wiki condensed the actual events to the concept "initial sales in six months". Convenient for a thumbnail view of the situation, but inaccurate if one is second-guessing production and sales figures.

If you read further along in the Wikipedia article, it states that sales are estimated ~10 million dollars a month - wouldn't this mean that sales of HTs are around 24 thousand units annually? Where did those figures come from?

Due to it's blog-like nature, I find that referring to Wikipedia is useful for anecdotal evidence, but sometimes doesn't have the precision required for "foundation-building" arguments.

[SegSister]

I don't know if those recall figures are apt for sales figures. My understanding is that the "6000" figure was a "production to date" total from whenever they started making them, possibly as early as the product reveal in December 2001.


I think the 6,000 number is probably a good figure for sales up until September 2003. The nature of a recall is that the products that have been sold to consumers are recalled for repairs. You don't have to recall products that haven't left the warehouse yet. The recall notice on the CPSC website says that the approximately 6,000 units represents all the units sold to consumers and commercial buyers.
http://www.cpsc.gov/cpscpub/prerel/prhtml03/03553.html

I agree, sometimes facts on Wikipedia are not accurate, but I think the 6,000 is probably a good number. I don't know whether April of 2003 is when regular sales began on Amazon or not, but it was probably around that time.

As far as current sales, all we can do is make an educated guess using the available information. I think the Valence sales figures provide a pretty good basis for extrapolation. But since we don't know the price Segway pays for the batteries, the proportion of the Saphions purchased by Segway going to new units versus upgrades of existing units, or the proportion of Segways sold over the last year that were equipped with Saphion versus NiMH, we have to make assumptions about those numbers.

I think it would be hard to make a case for more than 10,000 units sold over the first 12 months that the Saphions were available. Total Valence sales to Segway over those 12 months were $9.1 million. If one assumes that Segway paid $1,000 per pair of Saphions, that is 9,100 pairs. If Segway paid more than $1,000 for the batteries, then it was less than 9,100 pairs. I initially assumed Segway paid $1,250 per pair, becuase the original upgrade price was $1,395, and I thought Segway tries to sell replacement batteries at only a small markup to their cost. If Segway's cost is $1,250 per pair, that is only 7,280 pairs.

But if you assume Segway pays $1,000 per pair (and thus marks them up by 40% when selling batteries for upgrades), they bought about 9,100 pairs. Some of those went to existing owners upgrading to the Saphions. If 1,100 pairs were for upgrades, that leaves 8,000 Saphion-equipped Segways available for sale. I think the number for upgrades could be higher, (which means less new Segways) but who knows? Finally, if 8,000 Saphion-equipped Segways were sold, then it takes another 2,000 NiMH-equipped Segways to get to 10,000. That seems high to me, given dealer comments that they sell very few with the NiMHs these days.

Therefore, I think it is hard to make a case that sales over the last 12 months were more than 10,000 units. This is just a guess, but the Valence sales figures give us much more information for grounding an estimate than we had before.

[RC Mike]

I agree, sometimes facts on Wikipedia are not accurate, but I think the 6,000 is probably a good number. I don't know whether April of 2003 is when regular sales began on Amazon or not, but it was probably around that time.
Remember that corporate and governmental sales had been going on for at least a year before the amazon sales started.

Mike

[bystander]

I think the 6,000 number is probably a good figure for sales up until September 2003. The nature of a recall is that the products that have been sold to consumers are recalled for repairs. You don't have to recall products that haven't left the warehouse yet. The recall notice on the CPSC website says that the approximately 6,000 units represents all the units sold to consumers and commercial buyers.
http://www.cpsc.gov/cpscpub/prerel/prhtml03/03553.html

I agree, sometimes facts on Wikipedia are not accurate, but I think the 6,000 is probably a good number. I don't know whether April of 2003 is when regular sales began on Amazon or not, but it was probably around that time.

As far as current sales, all we can do is make an educated guess using the available information. I think the Valence sales figures provide a pretty good basis for extrapolation. But since we don't know the price Segway pays for the batteries, the proportion of the Saphions purchased by Segway going to new units versus upgrades of existing units, or the proportion of Segways sold over the last year that were equipped with Saphion versus NiMH, we have to make assumptions about those numbers.

I think it would be hard to make a case for more than 10,000 units sold over the first 12 months that the Saphions were available. Total Valence sales to Segway over those 12 months were $9.1 million. If one assumes that Segway paid $1,000 per pair of Saphions, that is 9,100 pairs. If Segway paid more than $1,000 for the batteries, then it was less than 9,100 pairs. I initially assumed Segway paid $1,250 per pair, becuase the original upgrade price was $1,395, and I thought Segway tries to sell replacement batteries at only a small markup to their cost. If Segway's cost is $1,250 per pair, that is only 7,280 pairs.

But if you assume Segway pays $1,000 per pair (and thus marks them up by 40% when selling batteries for upgrades), they bought about 9,100 pairs. Some of those went to existing owners upgrading to the Saphions. If 1,100 pairs were for upgrades, that leaves 8,000 Saphion-equipped Segways available for sale. I think the number for upgrades could be higher, (which means less new Segways) but who knows? Finally, if 8,000 Saphion-equipped Segways were sold, then it takes another 2,000 NiMH-equipped Segways to get to 10,000. That seems high to me, given dealer comments that they sell very few with the NiMHs these days.

Therefore, I think it is hard to make a case that sales over the last 12 months were more than 10,000 units. This is just a guess, but the Valence sales figures give us much more information for grounding an estimate than we had before.
I'm not disputing the number recalled (6000), I'm disputing the "6 months part". I think it covers a longer period, making initial sales less than 1000/month - average.

By your calculations, you have a good case to submit a change to the Wikipedia entry concerning the ~$10 million / month sales figure. Maybe the Wiki writer used the "peak season" month instead of the average-over-the-year month.

[Stewbonz]

I always thought the Segway Serial # reveals the units sold?
Looking at my numbers and the dates sold, I had estimated about 25 Segways going out the door each day in 2003.
The i70s I owned had serial #s starting around 13,000.
Havn't seen the i80s #s.

[fredkap]

Valence announced today that they will be selling their batteries to Oxygen SpA of Italy for use by a major European postal service with their electric powered motor scooters.

http://phx.corporate-ir.net/phoenix.zhtml?c=72609&p=irol-newsArticle&t=Regular&id=879396&

http://www.oxygenworld.it/start.html

[da_cheif]

The question that comes to my mind is if Valence goes under, what happens to the warranty on batteries that are still under warranty? Does Inc. have sufficient stock to honor warranty replacements? And is Inc. looking for a second source for lithium ion batteries? Given the uncertainty created by the going concern warning, you'd think it would be in Segway's interest to be addressing these questions.

I also have to wonder why Segway didn't look for other suppliers right off the bat? I just looked at the Valence financial statements and they are not a pretty picture. They have been losing money every quarter for as many quarters as I looked. They have over $50 million in debt. That's an awful lot of debt for a company that has only about $10 million per year in sales, even for a profitable company. But since Valence is still losing money, how will they ever pay back all that debt? They also have only a few million dollars of assets on the balance sheet. That doesn't seem like much if they own factories in China. I have to wonder about INC's judgement in chosing such a financially weak company to be the supplier of such an important component.


So since this is a segway users chat room bringing your Valence battery bashing to this board shows all to what lengths you are spreading your tactics from your home base on yahoo. You really are transparent.