-- UH: SMSI: EV-DO Outlook Accelerating --
09:14am EDT 23-Sep-05 C.E. Unterberg, Towbin (Church, Richard 212-389-8051) SMS
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SMSI: EV-DO Outlook Accelerating
Smith Micro is a leading developer and marketer of products for communications
networks, primarily focused on software for next generation wireless data
networks. Smith Micro was founded in 1983 and is headquartered in Aliso Viejo,
California. The company completed its IPO in 1995.
Verizon Wireless this week announced a number of partnerships with PC
manufacturers to offer its EV-DO service on their laptops. Partnerships
announced include Dell (DELL, NR), HP (HPQ, NR) and Lenovo (LNVGY, NR), which
recently acquired IBM's PC business. We believe the relationships heighten the
marketing power behind EV-DO and, combined with VZW's expanded coverage and
lower price point, should accelerate the adoption of EV-DO.
Under the agreements, SMSI will receive revenue from VZW for each laptop
configured for its EV-DO service. Dell has already begun offering the V620 PC
card on its website, with plans to shift to modules next year. HP plans to
demonstrate integrated offerings on September 27, with availability this fall
and integrated modules in their laptops early in 2006. Lenovo plans to
introduce an EV-DO configured Thinkpad laptop on October 11. SMSI gets the
same amount of revenue regardless of whether a PC card or an integrated module
is used.
EV-DO data kits coming. We believe that VZW has solved its network issues that
were keeping the carrier from offering SMSI data kits that can connect EV-DO
handsets with laptops. With these issues resolved, we expect SMSI to have EV-DO
data kit revenue in 4Q05. Data kits generate higher revenue per unit, offset by
somewhat lower margin.
The stock has rebounded significantly since we held an investor call with
management on August 25 (see our First Call note). We believe further catalysts
could be the CTIA trade show next week and solid results for 3Q05. We caution
investors, however, that while the news flow has been very positive recently,
including the announcement of Vodafone as a customer, we continue to expect a
more gradual improvement in results, accelerating in 2006.
At 14x our 2006 EPS estimate of $0.41, we believe the stock is a compelling
opportunity. Risks include high customer concentration, the potential for
emerging competitors to VZW to capture market share (including Cingular and
Sprint (S, NR)), and integration issues with Allume that could boost operating
expenses.
Cash is King until further notice!!!
My comments on companies are usually my opinion of long term success (years). The PPS may go up or down greatly in the meantime depending on the number of greedy suckers with money.
