Aldila, Inc. (ALDA)

Aldila engages in the design and manufacture of graphite golf shafts primarily in the United States. It sells its shafts to golf club manufacturers, distributors, golf pro and repair shops. In addition, Aldila, through its joint venture, offers carbon fiber materials that are used in various applications, such as molding compounds for the manufacture of electronic components, masts and spars for the marine industry, hockey sticks, fishing rods, and industrial products as well as golf shafts.

The graphite golf shaft industry is highly competitive, which is putting immense pricing pressures on the manufacturers. Since late 2004, the demand for branded shafts over customized Original Equipment Manufacturers (OEM) production shafts is rising which is enabling the manufacturers to ease off some of the pricing pressures. The overall equipment market slowed down in 2006, which impacted the company’s performance.

Strong sales to PGA tour professionals have not been sufficient in driving overall top line growth. Third quarter results of the company have been disappointing with about 16% decline in the topline as branded product sales that contributed about 58% of the sales in the third quarter of 2005 declined significantly. Its shift in the sales mix to sell lower-priced iron shifts further squeezed their turnover. Revenues from their key brand, NV Prototype, have also declined on account of lesser acceptance from the customers.

Carbon fiber is one of the principal raw materials for manufacturing shafts. However, the supply for carbon fibers is expected to remain tight due to increasing usage in wind turbines and aerospace applications which could ripple margin pressures. Management is optimistic about the new VS Proto brand that features carbon nanotubes, however, they expect the brand to follow the same lines as NV Prototype and thus consider it as a long-term opportunity. Thus, viewing these factors, Aldila is expected to enter a bearish trend in the one-year time frame.