One Last Hurrah for Valence Technology

The battery industry is a world of turmoil right now, and when Valence Technology (Nasdaq: VLNC  ) reported earnings yesterday it may have been the last smooth quarter for the sector's most financially solid company. Valence has been much closer than A123 Systems (Nasdaq: AONE  ) or Ener1 (Nasdaq: HEV  ) to being profitable, but after losing one of its most promising customers, the company's future is now up in the air.

For the fiscal fourth quarter, things couldn't have been much better. Revenue exploded to $13.9 million from $3.9 million a year ago. Gross margins expanded to 21% from 12%, and net loss was just $2.5 million, or a shiny penny per share. But that's where the good news ends.

A123 Systems announced this month that it had signed a deal with Smith Electric, one of Valence's biggest customers. Even Valence doesn't know how Smith's dual sourcing plan will work, but revenue guidance for the first quarter is just $8.5 million to $10.5 million without Smith. There's an upside if Smith does come through with orders in the quarter, but there will likely be a big decline in revenue sequentially.

Lots of questions, few answers
What was once a promising group of companies has now become a game of dodging landmines for investors. Advanced Battery Technologies (Nasdaq: ABAT  ) has been thrown out with the bath water along with other Chinese reverse merger companies. Ener1's future viability has come into question after it wrote off its investment in Th!nk. And even A123 Systems, which appears to be leading the group after stealing at least some business from Valence, has let us down before.

I'm still waiting to see which company emerges as the winner before buying into these stocks. The champion might hit a gold mine, but as we've seen, there are land mines it will have to avoid before getting there.

  • Click here to add Valence Technology to My Watchlist.
  • Click here to add A123 Systems to My Watchlist.
  • Click here to add Ener1 to My Watchlist.
  • Click here to add Advanced Battery Technologies to My Watchlist.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (7) | Recommend This Article (2)

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  • Report this Comment On May 26, 2011, at 3:48 PM, educatedquest wrote:

    I am a little confused with your statement that Valance lost its biggest customer? Smith is booming right now and decided to pick up a second domestic battery supplier to help with the tremendous growth they are expecting. Valance has standing orders and all of Smiths UK business?

    They did not want to apply the dollars to the first quarter until they have some guidance from Smith. Their projected growth without Smith from first quarter last year is 75% +-. The shorts and bashers have taken the stock down from the recent high of 1.80. This company is ready to breakout and has the product, patents and infrastructure to do it. I cannot see how you would think this was bad news?

  • Report this Comment On May 26, 2011, at 3:56 PM, buffalonate wrote:

    A123 Systems has the best technology and just got a new battery technology patent for technology that is even better. Their earnings have been hurt by building out their capacity. A123 is the only battery company I consider worth owning.

  • Report this Comment On May 26, 2011, at 5:12 PM, Battmon wrote:

    Buffalonate with an endorsement like that I'm going to mortgage my house and bet the short on A123

  • Report this Comment On May 26, 2011, at 11:55 PM, goldminer14 wrote:

    Fool should do a better research job in their articles.

    Per Valence's press release:

    Business Outlook

    Valence expects fiscal first quarter 2012 revenue to be in the range of $8.5 million to $10.5 million. This represents an increase of 52% to 87% respectively over the first quarter of last year. Down from the prior quarter of $13.9M, our Q1 guidance includes no Smith revenue. However, given that we have several million dollars of Smith business in our backlog, upside to our Q1 guidance does exist. Until we can better gauge the impact of Smith's dual sourcing decision on shipment timing, we feel it is prudent to exclude any Smith business from our Q1 guidance at this time. As previously stated, we anticipate supplying a significant volume of product to Smith during FY2012, including, but not limited to, all of the batteries utilized by Smith's UK operations.

  • Report this Comment On May 27, 2011, at 4:23 PM, TMFFlushDraw wrote:

    @goldminer14

    Do you really think Valence would give guidance without Smith if it expected to be a primary supplier?

    Y/Y comparisons are worthless for companies growing quickly. The increase from last year's Q1 is meaningless.

    Travis Hoium

  • Report this Comment On May 27, 2011, at 4:39 PM, educatedquest wrote:

    Travis,

    Valence is being conservative, should you not look on that as a positive trait? Better to beat projections than make excuses. If you were Smith does it not makes sense to have a backup and did you forget about the UK business. If you think Y/Y comparisions are worthless way do you say "but revenue guidance for the first quarter is just $8.5 million to $10.5 million without Smith". Last years first Quarter I think was just a few million? I think that does matter. Valence has had skin in the game a lot longer than A-123 and they do not sell product for under what it cost to make.

  • Report this Comment On June 02, 2011, at 1:30 PM, gusher1 wrote:

    Ummm, please explain how you can describe a company with a negative book value and a going concern warning from its auditor as "the sector's most financially solid company?"

    Maybe if you define the "sector" as tiny, struggling, third-tier battery manufacturers you can make that claim. However, if the "sector" is all lithium ion battery manufacturers which includes companies like Johnson Controls, LG Chem, Panasonic, Nissan, etc., then Valence would be one of the least financially stable companies in the sector.

    And even if you define the sector as tiny, struggling, third tier battery manufacturers, it is still a debatable point. VLNC may lose the least money, but they also have the worst balance sheet.

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