***NEWS, BLACK AND CO. "BUY" REVIEW QUOTES: 4/18/97
"We recently raised our rating on Radisys from Hold to Buy based on continued strong design win activity and a dramatic correction in valuation which we feel is overdone"
"...The company had approximately 21 wins in 1995. Radisys defines design wins as having the potential to generate $500,000 in annual revenues. Recently the design win has been much larger. Embedded computers are usually sub-systems of products that have product life cycles of four to six years, providing a predictable recurring revenue stream. Our earnings estimates are $1.83 and $2.23 for 1997 and 1998, respectively."
"Radisys is a leader in the design and manufacture of embedded computer solutions used by OEMs for products in the manufacturing automation, telecommunications, medical devices, transportation, test and measurement and retail automation equipment industries. Embedded computer systems are incorporated into a broad range of end user products including blood analyzers, patient monitors, cellular base stations, semiconductor manufacturing equipment, locomotive motor control devices and point of sale terminals."
"...The company's goal is to become a virtual division for its OEM customers. By becoming a virtual division of its core OEM customers Radisys can lower product development costs and reduce time to market providing significant competittive advantages."
Embedded Computer Market:
"The overall market is estimated to be in excess of $5 billion growing 15-20% annually. Radisys' main competition is its own OEM customer base...Outsourcing allows OEMs to focus on their own respective core competencies pushing the design and manufacturing of the embedded system to providers like Radisys. Currently, approximately 63% of all embedded computers are built captively. The rapid growth of the market, the continued outsourcing trends and lack of significant embedded competition provides an attractive industry backdrop."
"...OEM customer base including Allen Bradley, Applied Materials, General Electric, Hewlett-Packard, Philips, Siemens, Tektronix and Universal Systems. The company's significant design win activity and the average length of embedded systems designs, four to six years, gives the company a significant, predictable level of recurring revenue...expect Radisys to produce 6-8 design wins per quarter..."
"The company's key drive to 1997 revenue growth will be 1995 and early 1996 design wins...We believe the acceleration in design win activity in 1995 and 1996 and an increase in the absolute size of each design win will drive substantial sequential revenue and earnings growth with above average predictability."
"In April 1996, Radisys acquired Intel's Multibus hardware and iRMX operating system software businesses...The key benefits to this acquisition include access to a top notch, complementary OEM customer base, a significant European presence, a dramatic increase in revenue and a broader product line with both hardware and software for the company's current OEM customers."
"In February 1997 Radisys announced the acquistion of Sonitech International, Inc...we expect the key benefits to arise from moving this core technology into the company's current OEM customer base.
"Our near term target is the mid-$40s or approximately 18-20x our 1998 earnings...Given the company's rapid sequential growth, potential for upside surprises, continued strong design win activity, significant recurring revenue stream and high value added content we believe the stock could again carry a multiple much higher than our estimated 18-20x."
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