Netlist, Inc. (NASDAQ:NLST)

CAPS Rating: 2 out of 5

The Company designs, manufactures and sells memory subsystems to OEMs, in the server, computing and communications markets.


Player Avatar TSIF (99.96) Submitted: 11/13/2011 12:06:22 PM : Underperform Start Price: $1.98 NLST Score: +7.12

Netlist, Inc after years of consistant losses is starting to show some increasing revenues. With increasing revenues comes increasing expenses and Netlist is aware that they need to find a balance. It's very difficult in the technology field where you have to maintain levels of R&D, increased sales/marketing, and produce a product that will be obsolete a short time there after. Netlist, Inc did beat on revs this past quarter and enjoyed a 20% price spike. They have kept a low debt profile, but they are at the stage where inventory has quadrupled YoY and accounts payable and receivable are getting out of balance. The memory subsystems world is as volitile as you can get and inventory can not afford to be left stale. I would expect more stock issue as they hit the pivot point. The float is fairly low, so it may not be detrimental, but they are a very small cap company trying to make it in a big fish world. They're too small to be of interest to an acquirer and too small to raise capital. They are too small for their products to be courted without large sales expenses.

The $0.04 net loss was a large improvement, but I believe it was squeezed on the backs of cost cutting that can't hold. I'm not willing to pay 2X book on this company until I see a real profit, not a calculated EBITDA breakeven. I also want to see inventory growing at a more balanced rate to revenue, with an increasing, not declining QoQ stockholder equity.

Probably not a lot of downside here and maybe a company to watch a few quarters out, but overall, I expect a pullback from the one day 20% price spike, and next quarter had better be a solid win or a further pullback will occur.

Member Avatar TSIF (99.96) Submitted: 11/14/2011 7:27:56 PM
Recs: 1

Ooppps, some short term pain on this call. Netlist did a great job of stacking their good news sequentially and piling it on the shorts including my red thumb. Contracts with IBM and HP are good news, but I'm skeptical that the deals will generate revenue the next few quarters at least. The agreement requires the technology to be modified to work in the arrays and it will require qualification. With big company's qualification can take 2-4 quarters. Still, I'm unlikely to see this one retrace to where I piled onto it, so I suspect I will close this one in the red after the shorts recover and short term patience wears thin.

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