"Linmor on rise stage of roller coaster"
Larry MacDonald
Citizen Special - Monday, September 4, 2000
ottawacitizen.com
Practitioners of technical analysis might have felt their pulses quicken at the
sight of trading activity in the shares of Linmor Inc. (LIR/CDNX) in August.
The jump in share price on heavy volume was likely a buy signal for them.
Technical analysts might have also been encouraged by the fact that the upleg
started from a low that was higher than the previous low established last fall. A
pattern of successively higher basing periods is usually seen as a bullish sign,
an indication that the underlying uptrend is still intact.
Although the recent appreciation in share price is a welcome respite for
Linmor investors, they must be feeling like they have been on a roller-coaster
ride over the past 12 months. Last winter, the price of Linmor shares soared
from $0.40 to $3.00, but then slid back to $0.75 by the middle of summer.
With the recent breakout, the share price is above a dollar.
Ottawa-based Linmor provides performance management software that
allows telecommunication firms and network service providers to monitor their
data networks. Linmor's flagship product is NEBULA, which checks and
reports on the speed, throughput and other performance aspects of core
networks including Internet Protocol, ATM and frame relay. NEBULA also
monitors the performance of access networks such as Digital Subscriber Line
(DSL), wireless Internet and Internet over cable.
NEBULA allows network managers to respond proactively to problems. It is
unique in providing this capability at the carrier level. Most performance
management systems have their origins in enterprise networks and are
hard-pressed to meet scalability and real-time surveillance requirements at the
carrier level.
Not NEBULA. It can also monitor performance regardless of the technology
or manufacturer behind the various components comprising a network.
Supplying products used in conjunction with the Internet, Linmor seems well
positioned for rapid growth. As president and chairman John Farrell stated in
a letter to investors: "Due to the phenomenal growth of the Internet, network
service providers are seeing that their data network services are now
surpassing their voice network services. This increased demand for data
network services means increased demand for our NEBULA products."
Market research firm Yankee Group agrees with the favorable outlook. They
estimate that the performance management software market in the United
States will be worth $1.3 billion U.S. by 2003, compared with about $500
million in 1999.
Given the positive news coming out of the company recently, it is little wonder
that Linmor shares are now regaining some lustre. A big boost was the Aug.
22 announcement that TELUS Communications Inc., Canada's second-largest
telecommunications company, had selected NEBULA to manage the
performance of its ATM core and access networks.
This order came two weeks after Linmor landed a $300,000 U.S. order from
another service provider.
The TELUS contract is another addition to Linmor's growing list of blue-chip
clients. As a result of deals signed in the last fiscal year, the company's
software is presently being used by AT&T Corp., MCI WorldCom Inc.,
NEXTLINK Communications Inc., and Cable & Wireless HKT Ltd. This
customer base is set to expand and deliver a dominant market position
according to the Aug. 22 press release, which states: "With other
announcements on the way, Linmor's NEBULA product is rapidly establishing
market leadership."
There was another good news item Aug. 8, when Linmor released its results
for the quarter ending June 30. Revenues rose over the corresponding quarter
of last year by 64 per cent, to more than $500,000. Net loss for the quarter
was more than $2.5 million, primarily due to staff increases in sales &
marketing (100 per cent) and research (54 per cent). During the quarter, an
equity financing of $15 million was closed, and convertible debentures were
converted into common shares (leaving the balance sheet debt free, and
removing $750,000 interest expense from the income statement).
During the quarter, a partnership was arranged with IPmobile Inc., a wireless
router company (which Cisco Systems Inc. recently acquired). In
co-operation with IPmobile, Linmor announced the availability of the first
real-time performance management system for wireless Internet access
networks. Linmor also declared that its NEBULA product would provide
reporting modules for Hyperchip Inc.'s petabit carrier-class routers.
For the fiscal year ended March 31, 2000, revenue was $3 million, an
increase of 225 per cent over fiscal 1999. With the company still in rebuilding
mode, the loss for fiscal 2000 was $3.3 million, compared with $4.6 million in
fiscal 1999.
Although Linmor is currently experiencing large losses, it is going through a
corporate repositioning that may be on the verge of paying off. Strong revenue
growth in fiscal 2000 and the first quarter of fiscal 2000, in particular, is
indicative.
"The market for our highly scalable, real-time performance monitoring system
for managing the Internet network infrastructure has truly arrived," says Mr.
Farrell.
"The momentum from major customer wins, the enhancements to our
technology and the strengthening of our corporate infrastructure mean that
Linmor is poised for even greater success in fiscal 2001."
Larry MacDonald is author of Outperforming the Market: A Case Study
Approach. He can be reached at larrymacdonald@hotmail.com. |
