INFS -- Comments from the Conference Call

As I discussed in the previous post, INFS reporting their first operating profit was certainly better news than the alternative. However, while analysts were congratulating the CEO on “a great quarter” there were two statements made that seem extremely disconcerting to me.

First, the CEO enthusiastically pointed out that 80% of the company’s products have been refreshed over the last 2 quarters. New products are the only way a technology company can grow as they replace the old technology that’s quickly falling in price with newer, more expensive products.

So am I the only one concerned that with 80% of the product line upgraded over the last 6 months, ASPs (average selling price) are DOWN 20% year-over-year?

Q4:2007 ASP=$856 94K units shipped
Q3:2007 ASP=$882 85K units shipped
Q2:2007 ASP=$1,022 72K units shipped
Q1:2007 ASP=$853 91K units shipped
Q4:2006 ASP=$1,090 79K units shipped
Q3:2006 ASP=$1,097 74K units
Q2:2006 ASP=$1,162 84K units
Q1:2006 ASP=$1,191 94K units

The second comment that is making me lose sleep at night is the following:

“the projection market is fiercely competitive excluding a few notable segments has been commoditized. … We [InFocus] will be faster to market with new products and better price points.”

My interpretation of this statement is that instead of trying to use its industry relationships and intellectual property to move up-market, INFS is going to try to compete on price. Compete on price against giant Asian manufacturers (Sony, Sharp, Panasonic, etc) with unlimited financial resources, diversified streams of revenue which means they can lose money on projectors for a few years, and cheaper labor pool.

When I look at INFS I see a company that can’t raise ASPs even with brand new products and a company that has decided to pick a fight it has a very small chance of winning. This is why I am not bullish on the long term prospects for my INFS shares.

So why am I still holding on to my position and buying more?

Despite the long term problems, I feel that INFS is trading at least 50% below liquidation value. And that’s just to good of a deal to pass up.

I am not particularly bullish on Las Vegas real estate but if someone offered to sell me a house in Vegas for half of what the cabinets, shingles and tiles inside were worth if sold separately I would jump on that opportunity.


* DISCLOSURE: I or accounts I manage may be long or short any and/or all stocks mentioned in this post. This is not a recommendation to buy or sell any security. For informational and educational purposes only.