Power's financial cushion may go flat in about 12 months unless it is able to prove its new business concept and bring in revenues.
The Macintosh cloner, which previously was embroiled in a bitter fight with Apple to renew its bread-and-butter Macintosh licensing rights and found its plans to launch an initial public offering hurt by that disagreement, recently announced plans to sell its direct Macintosh business to Apple in a $100 million stock transaction. (See related story)
That means Power's Macintosh clone sales--which currently account for all of its revenues--will end at the first of the year.
Power then will have to live off the $100 million from its sale to Apple, a $30 million revolving credit line, and the remaining cash and cash equivalents it has in its coffers. As of March 31, the company had $3.4 million in cash and cash equivalents, according to its IPO registration filing with the Securities and Exchange Commission.
"Their infrastructure is in place, but they'll have to spend a lot of money on brand-building," said Bret Rekas, an analyst with Robertson Stephens. "With the $100 million and the systems that they already have in place, I think they have a cushion of a year."
Daniel Kunstler, an analyst with J.P. Morgan Securities, said a year is enough time for Power to roll out various computer products based on the Microsoft-Intel technology. But, he added, it's hard to gauge whether Power will achieve enough success in that time to remain a viable company.
Power last week announced it will begin shipping a notebook based on the Intel chip, known as the PowerTrip series.
Steve Kahng, Power chairman and chief executive, said his team is currently overhauling its business plan and will have a better sense in the next few weeks of how far the company's funding will stretch.
In response to analyst estimates, Kahng said: "It's a tough call. It's too early to tell...the PC market is very difficult and competitive."
"The question they face is whether we need another major direct PC company," Rekas said. "In the Mac world, the concept worked for them because they were the only ones after the consumer market."
He added that the gap among the 10 top-selling PC companies is widening further, with the top five companies gaining an even larger lead over their competitors.
Power is expected to have to spend big bucks in marketing and advertising in order to make a place for itself in consumers' minds, and likely will have to sell its products at a slimmer profit margin than it's previous 20 percent. Nevertheless, the company is not expected to encounter a heavy research and development expense, and its cost for additions to its facilities should be minimal. Power has been working on developing products for the Microsoft-Intel platform for the past nine months.
Apple spends about 6 to 8 percent of its revenues on R&D, while those in the Microsoft-Intel camp average about 2 to 3 percent, Rekas said. He added that Power is likely to see its R&D costs decline as it shifts to its new business model.
And although the company's revenue stream will move at a trickle unless it gets its PC sales up, it likely will have more money in the bank than it would have received with its IPO. Power was planning to raise up to $30 million in capital with its IPO, according to its SEC filing.
The company, according to the filing, had generated a positive cash flow of $431,000 during the first nine months of this year and had been generating profits. However, Power said this week it plans to unload its remaining Macintosh clones at a deep discount, which could cut into its profitability.
But Kunstler said he doubts Power would discount its products to the point it would damage its cash standing.
Power said last week it would cut the prices of its middle-range to top-end computers by up to $400, and earlier had announced its low-end computers would receive cuts of up to $300.
"Financially," Kahng said, "we're fine right now."