Interesting retraction from the London Telegraph. Frankly, I've never seen a public apology from a newspaper before. I imply this to mean they figured out that they really screwed up and were taken advantage of by the shorts. Who knows, perhaps Business Week will follow suit?
As far as Q1 goes, I think the market has already adjusted Osicom's stock price for a worst case scenerio. As most of you know by now, Osicom is divesting one of their subsidiaries, Relialogic, a manufacturer of pc multimedia add-on components, as it doesn't quite fit their strategy. This will give the appearance of declining revenues and earnings on a sequential basis. On the other hand, with this low margin competitively intense subsidiary out of the picture, gross margins will increase, which I believe is a step in the right direction in obtaining a P/E comparable with other networking competitors. In addition, the Chineese manufacturing plant was shut down for a few weeks in observence of the Chineese New Year. When analyzing the revenues, recognize these facts and their effects.
I'm sure the retraction of the article didn't come cheap. Osicom spent a considerable amount of cash on this issue. Was it a good use of money? Time will tell. Those words on paper may have costed shareholders a few cents per share this quarter. However, I believe it long term effects should prove it's worth. The fact that a public newspaper went on record to admit it was wrong in publishing that garbage and actually making a public apology is something I've never seen. It should put an end to this short perpetuated rumor and send a clear message to the shorts that the company is not going stand by and absorb these attacks.... they will fight back with every legal means possible and will prosecute if necessary.
Back to Q1... I'm expecting revenues to be in the low $30 million range. Most likely $32 - 34 million. This is mainly due to the absence of revenues being accounted for by the recently divested subsidiary. In addition, Osicom probably had a slower quarter just as most of its competitors due to weak market conditions. More importantly though is that it appears that gross margins will improve in this quarter and continue in the next and that market conditions have improved since Q1.
As far as earnings are concerned, I am assuming there will slightly less than 15 million shares outstanding fully diluted. With that in mind, as well as "extraordinary" expenses absorbed in Q1 relating to the London Telegraph, legal expenses to investigate and try to speed up the NMS listing, legal expenses involved in the divestiture as well as expenses involved with trying to locate a buyer, and expenses involved with Interop (Par tells me they probably spent close to $250,000 on Inerop., but judging from the crowd they drew, I believe it will bear dividends in the long run). With all these expenses in mind, I am estimating eps to come in around $.05 - .07 for Q1. Keep in mind that these expenses are extraordinary in nature, but will most likely be treated as G&A expenses. I believe the key here is the execution of the business plan. As these are "extraordinary expenses", I expect that eps will return to the "teen" range starting this quarter (Q2).
The business plan:
-They have stated that they intend to increase gross margins going forward. Q1 appears to have produced those desired results and so far, Q2 appears to be producing gross margin expansion as well.
-In the third quarter conference call, they made a bold statement to the effect that they were planning on increasing their distribution channels dramatically. Staying true to their word, they came up with the 3 heaviest hitters... Tech Data, Merisel and Ingram Micro. (and a few smaller ones too).
-They have expanded their presence overseas as well. A couple new offices have been opened up in the Far East recently and the ABCN deal should open several doors for them. .
-New products have been introduced. Most recently, they have rolled out several new hubs, switches and a WDM product, which goes into production in September. The IQX-200 remote access concentrator will be officially launched later this month. Par also mentioned to me that the development of the new wireless products to be used in the ABCN venture are on schedule.
The one area that Par has little or no control over is the NMS listing. Unfortunately, this is an area that so many people have focussed on recently. In my opinion, Par & Sharon have carried out their business plan as proposed, and I have very little doubt that they will continue to do so, especially when you consider that they are the largest shareholders. If you run the numbers against the requirements, you will see that they are fully qualified for NMS listing.
I am still very bullish on Osicom. In fact, I scouped up 300 shares today at 6 13/16 this morning and I am sitting here wondering how the Q1 numbers are going to be absorbed in the market. Should Osicom come under selling pressure upon the release of their earnings, I am prepared to accumulate more shares. The way I see it, Q1 is water under the bridge and we are now almost at the halfway point of Q2. I estimate that Q2 may produce eps in the low teens, followed by quarters with sequential increases as a result of new products and especially as a result of ABCN.
The preceeding comments are my opinions and should be interpreted as such. They are a result of my personal research and analysis. I encourage those reading my comments to do their own research and make their own investment decisions based upon such research. |
