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Re: ddbl_our_buck post# 34

Wednesday, 02/01/2006 12:59:34 PM

Wednesday, February 01, 2006 12:59:34 PM

Post# of 85
Wed: If Silicom can
Companies such as MindCTI have every chance of emulating Silicom's stock market success.


Shlomo Greenberg

What makes an investment successful? What causes shares to rise the way Orckit Communications Ltd. (Nasdaq:ORCT; TASE:ORCT) and Silicom Ltd. (Nasdaq:SILC) have done? After all, the trio of Mind CTI Ltd. (Nasdaq: MNDO; TASE:MNDO), Eltek Ltd. (Nasdaq: ELTK), and Top Image Systems Ltd. (Nasdaq: TISA) have raised sales and become profitable the same way the other two did. Not on the scale of Orckit, it’s true, but definitely on the scale of Silicom.
On Monday, Silicom published its financial report for the fourth quarter of 2005 and the year as a whole. The results were astonishing, compared with the past, and with investors’ expectations at the low point in 2002. Silicom’s share justifiably rose 15% to give a market cap of $33 million. This small Kfar Saba-based company’s success in emerging from a crisis that threatened its very existence and turning into an apparently thriving business is amazing.

If Silicom is compared with the other shares mentioned above, the question arises, why haven’t they risen in the same way? Please understand, I’m not surprised that Silicom rose to a price better reflecting its value. I’m surprised that the others have not.

Mind CTI, for example, started out at $0.89 per share in October 2002, and is now worth $3.30. The company posted a profit of $330,000 on $10.8 million revenue in 2002, a profit of $3.6 million on $13 million revenue in 2003, and a net profit of $6.8 million on $17.8 million revenue in 2004. In 2005, it is expected to post a large profit on over $20 million.

True, Mind CTI’s profits and sales for the third quarter fell slightly, compared with the second, but that was corrected in the fourth quarter, at least according to the company’s guidance. How much is Mind CTI worth today on Wall Street? $71 million, including $41 million cash at the end of the third quarter (after acquiring US company Sentori Inc. for $5.1 million in cash).

In other words, the market cap for Mind CTI’s business is $30 million for a company with a net profit of $7 million. Why does this happen? After all, it is unimaginable that someone wanting to acquire this company would pay $71 million for it. That number might be alright on Wall Street, but not on Main Street.

Why do I expect Mind CTI’s share to do something like Silicom’s did? Because Mind CTI emerged from crisis with a lot of cash, and it’s in a business that has started to gather pace. Moreover, the company has begun to distribute dividends. But that's life. Silicom's stock market performance outdid Mind's in early 2006, and by a wide margin. Remember, in October 2002 Silicom was considered a corpse: no money, no product that we knew about, no market, and with nothing to interest the serious investor. I bought the share at the time, because I reckoned I couldn't lose much at $0.20 or $0.30 a share. If the technology exists, and management knows what it’s doing, the risk at that price is pretty small.

So what should one do in 2006? In terms of economic value, all the shares I’ve mentioned are in more or less the same situation. Let’s look at MER Telemanagement Solutions Ltd. (Nasdaq: MTSL), and see what it has to offer. The company has a lot of customers, a long history of technological development and accumulated know-how, and it’s under new management.

What is happening here resembles what happened to Attunity (Nasdaq: ATTU), Mind CTI, Top Image, BOS Better Online Solutions Ltd. (Nasdaq: BOSC; TASE:BOSC) and others companies that survived the crisis of 2001-02. They survived with enough strength to go on and find their places in their respective niches. All their niches are huge, so a large part of the companies’ potential depends on the current state of their management. The most interesting thing here is that even Silicom, which has provided a large percentage return since 2002, is still far from fulfilling its potential. Silicom, like the others, depends entirely on its management to lead it in 2006 the same way it led the company in 2004 and 2005.

What is the conclusion? There is no point in selling any of these shares at the moment, because nothing real has happened since October 2002, and if anything did, it was only for the better. Nevertheless, anyone who bought shares in the likes of Orckit, Aladdin Knowledge Systems Ltd. (Nasdaq: ALDN; TASE: ALDN) or Silicom in 2002, and has not yet sold some of them, either has nerves of steel or is an irredeemable optimist.

I now own about half the Silicom shares I held in 2002, despite my considered view that this company is only at the starting gate. Anyone who understood this logic could be a licensed investment advisor.

Published by Globes [online], Israel business news - www.globes.co.il - on February 1, 2006

http://www.globes.co.il/serveen/globes/docview.asp?did=1000057046&fid=1052

Dubi