Folks: FYI--late PM addition Wed 1 Dec 99
CIBC World Markets Inc.
? PM Edition
Wednesday, December 1, 1999
Certicom: Q2 Continues Growth Trend; License Announced With Qualcomm; Maintain Buy
Paul Lechem 416-956-6429
CIC Buy FY Apr. EPS 1998 1999 2000E 2001E
Price: $46.00 Q2A $0.27 Current: ($1.47) ($1.41) ($0.89) $0.02
Target: $55.00 Q2E $0.27
ú Certicom announced Q2 results this morning, reporting another quarter of strong revenue growth. Revenues for the quarter
were US$2.6 million compared with US$2.1 million in Q1 (22% sequential growth) and US$0.9 million in Q2/F1999 (196%
year-over-year growth). Revenues were also slightly ahead of our expectations of US$2.5 million. After holding operating
expenses flat for the past year, Certicom has increased spending by approximately 10% over Q1 levels as it continues to
expand its sales, marketing, consulting and product development organizations. Certicom still continues to record significant
amortization charges related to the Consensus and Uptronics acquisitions; accordingly, the net loss for the quarter was
US$5.3 million (US$0.49 per share). Excluding the amortization, the net loss for the quarter was US$2.0 million (US$0.18
per share).
ú Separately, Certicom announced that Qualcomm, a major manufacturer of CDMA chip sets and cell phones, has licensed
Certicom?s encryption technology. The details of the agreement have not been disclosed, but the encryption might likely be
used in a next-generation web-ready cell phone. We note that Certicom?s technology is becoming an increasing necessity for
wireless device manufacturers (be they pagers, cell phones, PDAs, etc.) as the usage of these devices shifts from voice
communications or simple one-way messages to full two-way data transmission. This license agreement marks Certicom?s
fourth major deal in the wireless space, following license agreements with 3Com/Palm Computing (embedded in the Palm
VII wireless equipped PDA), Schlumberger (manufacturer of smart cards for the GSM phone), and BellSouth (wireless
applications using RIM pagers).
ú Certicom?s revenues continue to be driven by new license agreements and consulting revenues to help customers implement
security systems in their products. Major licensees now include Motorola, HP, 3Com (Palm Computing), Qualcomm,
Schlumberger, Sybase and others. As Certicom?s technology is typically built into new products, royalty revenues tend to lag
behind the signing of license agreements. Certicom continues to be positioned well to capitalize on the growth in a number of
fast-growing markets that require security solutions, including wireless communications, e-commerce and the Internet.
Given the current revenue growth outlook, we are looking for Certicom to break even on an operating basis by early F2001,
and rapidly improve profitability thereafter. We continue to rate Certicom as a Buy with a $55 target.
ú Notes: 1) We will provide a further update following the management conference call this afternoon. 2) Certicom has now
moved to U.S. dollar reporting and we will restate our estimates shortly in U.S. dollars. |
