Do you have a SystemSoft update?
Actually, SYSF and WIND have something interesting in common, which makes at least part of my response relevant to this thread.
First some history. I liked SystemSofts franchise on the PC-Card system software business, and early indications of SystemWizard, caused me to take an noticeable position in February 1996 at $12.
The price is 3 ¬, which is where it should've been all along. They've lost their biggest PC-Card customer, Compaq, to Award. They've also lost Asian BIOS business to Award. SystemSoft just had an awful quarter and Award had a blowout (the price rose 25% the day after the earnings announcement). SystemWizard is practically being given away and there's little demand for the product. CyberMedia has also crashed because they can't sell a similar product in the retail channel.
During the last nine months, SYSF endured an assault by an analyst challenging their policy for booking revenues and capitalizing costs, and they were led (possibly naively) by HP and Intel into paying dearly for Radish, a software company, to better integrate SystemWizard into call support centers for PC makers.
SystemSoft admitted that the analyst was right in their latest earnings warning and will be writing off $12-14m. They also admitted losing money on the acquisition. They didn't say that 80% of the Radish employees took the money and ran.
This last spring, SYSF post-split stock price broke down to around $7, worked its back up to the $12 to $14 range, only to get tanked again, ending Friday at $8 5/8. Mark thinks the stock will sink to $4 before recouping, if it does recoup.
The price is now 3 ¬, so I was wildly overoptimistic. However, nobody accused me of optimism last summer!
What do I think. Well, after the stock completed its major sell-off, I started re-establishing my position. When the stock broke down seriously in the spring, I bought more. Why do I like the stock after it was blatantly hyped by management, with disappointment followed by disappointment?
By far and away, the number one reason why I like SYSF is Angelo, the CEO. He saw the gold ring and went for it. His moves were as aggressive (albeit na‹ve) - but he was, and is, absolutely right. Angelo never hyped the stock; he simply couldn't contain his almost childish excitement when he brought out a product even money-managers could understand. Angelo obviously misinterpreted the Intel cum DEC cum HP commitment to SystemWizard (easy to do since Intel paid for it, and DEC was bubbling with enthusiasm and they both contributed scads of intellectual property -- remember DEC spent millions in the eighties developing and maintaining an computer configuration expert system). In his close-in dealings with Intel, DEC and HP, Angelo obviously got carried away with the connections he thought he would be bringing to the sales table.
SystemSoft knew that DEC had no enthusiasm for the product because DEC sold their royalty rights to SystemSoft for a low price. Angelo hyped the stock because he knew "the story" (in investment banker parlance) could be sold easily to gullible investors like you and Dave Lehenky and he sold his shares at a massive profit when the price was high.
So what happens now? By now SYSF has done most of the work necessary to implement SystemWizard successfully (thanks to Radish) in a growing number of call support centers, many on pilot products. Early results are surprisingly positive, suggestive of continued expansion of SystemWizard across product lines and call support centers.
The earnings warning of revenue collapse clearly indicates that it's not being accepted. They released SystemWizard in Nov. 1996, so it can't be called "early", either.
If the business model for SYSF makes sense, then the SystemWizard product promises to be exactly what the seasoned investor prizes. The longer it takes to get SystemWizard to win broad acceptance for PC/laptop products and companies, the higher are the barriers to entry by competitors. The Intel and DEC support, the time and effort, the intellectual property - in combination, these things cannot easily be duplicated.
You must be really thrilled now! DEC must be kicking themselves for selling their royalty rights!
Every time novices show impatience with SYSF and squeal inanities about Angelo's ill-fated decisions, I buy more. Angelo lacked maturity, granted, but it is unwise to turn negative on a manager moving aggressively in a direction you believe makes sense - even if it turns out to be a mistake.
You must be loading up your truck now! You can buy 3 shares now for the price you paid for a single share 6 months ago! Angelo is in his 50's and suffers no lack of maturity. In fact, his big profits ensure he doesn't suffer anything at all, except embarrassment!
Only aggressive managers will make you money in the long term. Take away a high-tech manager's ability to be aggressive and you are left with mush, which is worth less than what the word sounds like.
Intel and GE are plodding old companies that earn heaps of money. You make money when the manager makes good investments. Qwest and MMG are losing money, but they're building fiber-optic networks that will produce big revenues in the future. SystemSoft will continue to squander your money on a hopeless cause.
But is the SYSF business model sensible? This last, bad, quarter showed revenue growth of 39%, and was profitable, even though the new CFO took a receivables write-off charge of about $1 million. If you ignore Related Party payments (grant payments from Intel), then year-on-year revenues were up over 45%.
Last quarter wasn't the bad quarter. It was the good quarter. This quarter will be the bad quarter.
The adjusted view by the Street shows SYSF making 25 cents this fiscal year ending January, and 45 cents next fiscal year, and growing EPS by 45% annually thereafter.
They will lose at least $0.68 this quarter and the $12-14m writeoff mentioned earlier shows that they haven't earned any money in at least a year. In addition, there will be a huge quarterly operating loss.
USB promises a new arena to play in, and PC Card-based portable devices, or similar things, will be sprouting up all over - even on desktops. Even if the reduced estimates understate future earnings, SYSF is still worth a multiple of the current price.
USB was their only reasonable hope for growth and they just sold 85% of the business for an undisclosed sum to the last 7 employees who weren't transferred to SystemWizard tasks because they're desperate for cash. The previously reduced estimates wildly overestimated future earnings. They admitted in the conference call that there will be no earnings at all for at least 2 more quarters. Award's new product, USBAccess, will provide USB connectivity to VxWorks users and they will reap the profits.
In short, SYSF is made to order for the seasoned investor. Great existing business model. Slow, development of a franchise tangential to its existing PC Card franchise (synergistic use of deep-down system knowledge), aggressive but now more experienced management. Value based on analysts reduced estimates a multiple of current price.
SystemSoft is made to order for the seasoned short investor. One of my friends told me he made more money on his SystemSoft short than any other short position. I made some money, too, but I almost always prefer to buy stocks.
If something I posted caused Dave to buy SystemSoft, then you should take his action as another indicator that SYSF is an attractive buy. Dave clearly is a competent professional and investor and will make up his own mind about high-tech companies. Curious about this, in a recent exchange of email with Dave, I learned that he, like me, has a nice profit resulting from SYSF trades, and he continues also to be bullish about SYSFs potential.
Dave Lehenky has also lost his shirt on SystemSoft and continues to desperately hype the stock on the SystemSoft thread. He an excellent writer and has conned many others into losing their shirts, too.
SystemSoft announced in the conference call that they're considering repricing employee stock options, so it's unlikely that you'll ever get your money back. It's not a one-time setback. |
