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Viewsonic IPO looks like a dim bulb


Sometimes a company files to go public and when you read their recent business track record you can’t help but wonder what the heck are they thinking. Vonage is the best example in recent years but sly investment bankers seem to lure credulous CEOs to file for IPOs with surprising regularity. Take today’s exhibit A:

A company operating a commodity business with brutal price competition just about doubles its revenue in four years to $1.6 billion. Back when revenue was just $876 million, the company had net income of $18 million. So how did they do four years later on the bottom line? Hmm, could be promising if they managed to keep overhead costs at bay or built a business model that took advantage of falling supply costs or otherwise came up with some clever marketing strategy or something, right? The company in question, computer monitor and television maker Viewsonic, just filed to go public. Oh, well if they’re going public obviously they’re on to something clever. Let’s see, if their margin just stayed the same they’d be reporting net income of about $33 million. Say they just increased the margin by one percentage point of sales. So they’d be up to $50-ish million in net income. The actual 2006 figure: $24 million. In other words, sales increased 81% but net income increased only 33%. That might be okay for a company with high profit margins and solid earnings per share but Viewsonic only capturing a few pennies of each sale as profit.

Well maybe the picture is getting better now. How about average selling price, or ASP? Nope — average selling price of Viewsonic’s stuff dropped 22% last year from 2005 and 21% in the first quarter of 2007 from the same period of 2006. What’s up with that? In their own words:

“These decreases were primarily due to increased production capacities of LCD panel manufacturers, aggressive price competition and product mix. In recent years, the decline in the ASP for LCD monitors has been faster than the decline in our product-sourcing costs and this has resulted in decreased margins. If ASPs continue to decline, our revenue and gross margins could decline.”

So Viewsonic is in a business with no barriers to entry, competition is staggering, prices are declining faster than supply costs and they want your money to fuel further growth? With net income of a penny a share in 2006, maybe in four years if sales doubled again, they’d be up to 2 cents.


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