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  • Fujigrower Fujigrower Oct 28, 2008 9:34 AM Flag

    Q3 conference call thoughts

    I've been wrong so many times regarding DAIO over the years that at some point the law of averages has to catch up. I'll take another shot in regards to yesterday's 20%+ decline in share price.

    -One of two scenerios triggered the sell-off, an investor who sees an "uh oh" Niagra Falls scenerio ahead for DAIO's revenue stream or an investor (private investor or hedge fund with a margin call, institutional investor's with shares being redeemed) forced to sell. I suspect it is the second scenario.

    -DAIO's Q4 revenues will undoubtedly drop in the short run but that does not justify an "Enterprise Value" of $11 million for a company that generated $7 million in positive cash flow over the past 12 months.

    -DAIO has plenty of company among microcaps where the most accurate adjective for the share price is "insane." Tech bubble valuations were insane when investors stampeded upward in 1999 were in that category. This stampede is identicle but in the opposite direction.

    -DAIO has enough cash to repurchase 50% of the company's outstanding shares. Fred Hume mentioned one large investor opposes a share repurchase program. At this price level Mr. Hume and his leadership team should poll a wider group. Repurchasing shares now at $2.50 will make all DAIO shares and options worth much more in the future. The company can leave enough cash to ride out a few weak quarters.

    -Yesterday's DAIO/Zollner press release illustrated why demand for DAIO's programming equipment and solutions may decline in the short run but will continue to grow over the long run. Zollner is a new customer and they made a $500,000+ investment in a customized DAIO PS588. This will go in one of their 14 manufacturing plants. They have 7,000 employees and introduce 2,000 new products every year. Do you think there is opportunity to sell more leading edge flash programming equipment and solutions to Zollner?

    Worldwide Zollner ranks "among the top 15" Electronic Manufacturing Services companies. Could DAIO have a few opportunities among the other 14?

    "The main reasons for Zollner's decision were process safety and transparency." Whether with smart phones, automobiles or other high end gadgets, the tolerance for defects of any kind continues to shrink. Continuing to have parts programmed mannually in the back of Uncle Wang's garage in Shanghai simply is not going to cut it for many manufacturers.

    Many consumers will have to tighten their belts during the global economic downswing but demand for new gadgets like Smartphones is not going away. Google, for example, now has a "Learn more about the G1 Phone" link immediately under the search bar.

    http://www.google.com

    The number of Smartphone units shipped, whether iPhones, G1's, Blackberry Storm's or Nokia touch screens will continue to climb globally. If/when Apple introduces a lower cost "iPhone Jr." the units shipped for that phone alone will skyrocket. Someone has to program them. It won't be Uncle Wong.

    These increasing # of units shipped not only require more flash programming equipment but also more flash programming consumables. In Q3 $2.4 million (30%) of DAIO's revenue came from consumables. While Uncle Wang can buy counterfeit DAIO sockets at a discount in the alley behind his garage, the Apple's, Nokias and RIMMs of the world will not take the risk.

    I've studied DAIO for five years. The company is stronger in its product line, efficiency, competitive position and staff cohesiveness than at any time during that five years. This is a very strong team.

    Like the "Jenny" sailing back into port after the Hurricane in Forest Gump, when DAIO gets through this global economic downturn their market opportunity be better than ever.

    Good luck to everyone.

    Fujigrower@gmail.com

 
DAIO
3.27+0.08(+2.51%)12:26 PMEDT

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