Rames ZSTN GPS segment is the sole reason I own the stock. They have two subsegments
1. the sale of actual devices (like tomtom)
2. the Support & Service segment
The device segment has slightly higher margins than their traditional Cable TV and HD TV products, although this should widen as their TV ASP's erode faster than GPS devices. The support & service segment which provides tracking systems and 24/7 call centers is a great source of reoccurring revenue. Not to mention any revenue is passed almost directly to Net Income (you can imagine the cost of running a chinese call center, I think it was like 28k cost to bring in 2 million in service/support rev) This segment had 99% margins for 3 months ended sept 30, 2010. For those 3 months their GPS devices had sales of almost 6 million while service was about 2 million (the CFO also said you can expect this 3 to 1 ratio longer term). Because of how revenue passes through almost directly to NI, its pretty amazing. For sept 30, quarter they only had 6 million NI of which 2 million was from service alone. As ZSTN grows this GPS segment, NI will skyrocket not to mention provide a stable source of reoccuring revenue. What I would like best (although highly unlikely) would be for ZSTN to sell out their legacy TV business. Even if they sold it at 3x earnings it would bring in 57 million in cash. Which would make them currently trading below cash value, plus they'd have a highly profitable relatively stable business.
and yes managements recent raise was quite concerning, anyways I'm still long.
AI
