Listened to the last CC again last night. So MSII products will be included (for the first time) in on one of the major catalogues selling to Fortune 500 companies and I believe they will also be in a major European catalogue, both annual publications coming out in January (please correct me if I don't have this exactly right.)
Management stated that much more important is the personal relationships their sales reps are making here and abroad.
In a previous post someone asked about the possible effects of a business slow down is the US effecting MSII's top line. The way I understand it, the idea behind MSII's potentially huge sales growth is the expanding of their market share which is supposedly now only a fraction of what it could be with proper exposure to the right clientele. If their current Market share is so small, there should still be room to grow in even a shrinking economy.
On top of that there is the theory that a business slow down could actually be a boon to MSII as their prices offer heavy discounts to businesses looking to streamline their costs.
I'm basically trying to jump start some conversation on this board. I think this is a very interesting business and I'm wondering how you guys are weighing its pros and cons.
I've been in the compatible printer cartridge industry for over 20 years and have bought and sold MSII stock profitably over the past 4 years.
MSII currently faces 2 major problems:
- The ongoing Xerox patent litigation is draining earnings and most likely will continue to drain them for some time. Also there is the possibility of huge financial losses to MSII if they are found to have infringed any of Xerox's patents. The exposure here is big enough to bankrupt this small company.
- The companys products are not proprietary. In other words they are sourcing the majority of there product line from factories in Asia that are also supplying many other importers now with the same products which will continue to flood the North American market(and other markets throughout the world) at reduced prices that MSII cannot compete compete with given there high overhead structure and MSII does not have the brand equity to command the higher prices it needs to charge. Only the companys solid ink produts are proprietary and these products continue to decline in market share.
I sold my MSII position many months ago and believe that the companys current risks far outweigh the possible rewards.
<<The ongoing Xerox patent litigation is draining earnings and most likely will continue to drain them for some time. Also there is the possibility of huge financial losses to MSII if they are found to have infringed any of Xerox's patents. The exposure here is big enough to bankrupt this small company.>>
The patent litigation is having an effect on earnings but nothing that the company can't handle. There is a counter anti-trust suit against Xerox claiming that Xerox has changed the way their solid ink is fed into their new printer just to block MSII from selling into the Xerox printer market. MSII is counter suing XRX on this as an anti-trust suit and a federal judge has already agreed with MSII on this point. This printer feed change was NOT done to benefit to the consumer but was done solely to keep a competitors product from the market. As an Anti-trust case that pays treble damages, this could end up costing Xerox a whole lot more than they ever bargained for.
MSII has a team of engineers working full time to redesign ink cartridges in order to avoid stepping on an existing OEM patent. MSII doubled their engineering team in 2007 just so they could introduce more proprietary cartridges at a faster pace. This is the statement at the end of every press release.
�Media Sciences manufactures products for every solid ink business color printer available on the market today. The Company also manufactures color toner cartridges for a broad array of leading business color printers made by Dell(R), Xerox(R), Tektronix(R), OKI(R), Ricoh(R), Konica-Minolta/Minolta- QMS(R), Epson(R), and Brother(R).�
MSII is a manufacturer!!!
If they were just an importer buying cartridges from another supplier why would they bother to bring out press releases like this? See link:
As someone in the business for 20 years, I assume you have proof to back up your statements. If you don't, then stop spreading rumors.
Unless you are talking about a few cartridges that MSII no longer manufactures for obsolete printers but continues to sell as a favor to customers.
Please list specifically which ink cartridges from MSII's "current line" of hundreds of cartridge SKUs are "not proprietary" and are just being bought for resale from Asian suppliers.
I will be patiently waiting for your reply.
You are exactly right with what you heard. This is a great company that can easily quadruple their revenues once they break into the Fortune 500 market. Right now on the internet they are selling cartridges to retail buyers and small businesses in the 1-10 quantity catagory. Once they begin selling through the big business catalogs, corporations buy in the hundreds to thousands of units.
Even most small businesses buy their stationery supplies from a business catalog.
In addition to adding new larger accounts and gaining market share, here are two bits of information that most investors don�t realize, and it�s two things that will save them millions of dollars in reducing their NJ warehouse inventories, cutting costs and raising gross margins. This is where another big profit change in the business comes from.
First, few investors realize that many of MSII�s toner cartridges for various printers are actually the same design that fit multiple printers. The reason for this is that there are only a few different OEM printer engine manufactures (the electric motor that runs the printer). If the engine is the same, then the cartridge is the same.
Just like Mazda makes the same engine for some Mazdas and some Fords, Ricoh actually makes the same engines for models of Ricoh as well as some models of Cannon, Dell and Xerox printers. The only differences are the chips they use.
Currently when cartridges are ordered from China they must be filled, boxed and labeled individually. Because of the long lead times and the fact that their China vendors will only ship full containers of finished cartridges, MSII must order large quantities in advance based upon what they forecast their customers will buy. Since they never know for sure what will sell best on a new model, they tend to over order until they see a trend developing. For four printers, each using four colors, that amounts to 16 SKUs. But if they forecast wrong and Cannon and Dell are outselling Ricoh and Xerox they will be sitting with loads of extra inventory on 8 SKUs and short SKUs for Cannon and Dell.
Here is where the cost savings comes in. Once MSII opens their own plant in China, MSII will be doing their own filling, boxing and shipping of product as they see the orders flowing from their customers.
MSII can keep large skids of empty plastic housings that match all four printer models along with ink, barrels of chips and empty boxes and labels. As they see demand change for different printers they can just fill, label and box the housings specifically for those printer models. This will reduce over ordering and over shipping inventory because MSII will be able to load just what they need. Also they can fill partial containers mixed with other products and get faster deliveries while being able to fine-tune inventories. So they should always have the right cartridges on hand while cutting obsolete inventory. This should allow for reducing overall inventory in the NJ warehouse by 50%.
Secondly, as printers age MSII needs to continue to support old printer lines so as not to lose a good customer. The current problem is that China requires minimum cartridge runs of 2000 per SKU. This could be very expensive when you are dealing with hundreds of models if they only move 50 units a year of these older cartridges. With their own plant they could fill and box as little as 25 or 50 units just to keep a small fill-in inventory on hand. This is another big savings.
The more that you understand the working of MSII�s business; the more you appreciate the significance of opening their own China packaging operation.
Thanks for all the great insights, really enjoyed reading your post.
A couple quick questions:
Down the road, what sort of PE should we be thinking about for an eventually successful MSII type company?
Is there a possibility that the hacker-like business model of MSII will always hang over its head and make it seem like an underhanded, suit prone entity? In other words, depress its PE.
And a quick comment for any of you who are concerned about Levin's regular option exercising. He has 240,000 options that expire on 6/28/08. He was awarded them for his management performance and he has to cash them in by next June or they're worthless to him. He has to exercise and sell them off slowly as MSII daily volume is so small (less than 50,000.)
Don't worry about his belief in owning shares of this company. He holds about 1 million common shares almost 10% of the outstanding share count, and he hasn't been selling those.