Target $12 on Smith Micro
Smith Micro Software, Inc. (SMSI) is a developer of wireless communications software and utility software for multiple operating system platforms. It has significant relationships with several large cellular providers and original equipment manufacturer (OEM) cell phone manufacturers.
Fourth quarter results were in-line with our expectations. The first half of 2008 will include costs of product development that will generate revenue in the second half of the year.
Although the communications software market is highly competitive, there is no direct analog of Smith Micro. The closest in nature is Symantec Corp. (SYMC) with its suite of diagnostics and utilities. However, QuickLink Mobile is usually sold in conjunction with a PC card and there are two companies in this market. Qualcomm's (QCOM) markets are driven by new infrastructure and phone technology, so we have listed its valuation parameters.
There are two very small companies in the voice and data communications market,
Xfone (
XFN) and Roaming Messenger. The latter company is too small to provide meaningful comparisons. The stock is currently selling at below the group averages. Since future earnings will be taxed we feel that the PEE ratio should be closer to the group average. Our rating remains a Buy with a target price of $12.
Unisys Now Expected to Perform
Unisys Corporation's (UIS) revenues for Q4:FY2007 came in at $1.53 billion, down 1% year-over-year but up 10.5% quarter-over-quarter, but exceeded the consensus estimate of $1.50 billion. EPS of $0.04 was well below our estimate of $0.11 (consensus was $0.12). F/X had roughly 5-percentage point positive impact in the quarter. Service revenues were down 2.4% year-over-year. The decline in the revenue would have been greater had the weak dollar not boosted the value of foreign business.
On a positive note, outsourcing revenues grew 9% year-over-year. Technology revenues were up 5.8% year-over-year driven by double digit growth in ClearPath revenues. GAAP gross margin improved to 27.7% from 24.9% in Q4 2006 and 22.2% in Q3 2007. Operating margin of 4.5% improved slightly from 4.4% in Q3 2007 but was down from 4.6% recorded in Q4:FY2006. Nevertheless, management continues to target an operating margin goal of 8%-10% by the end of 2008. Management is still engaged in a multi-step strategy of reducing the cost structure of the company and focusing its resources on high growth areas of the IT market.
