Mark, I think the conference call presentation was great if it was
intended only for those that know the company as well as I do.
Obviously it wasn't, and the Q&A showed it. There were a couple
of things that sounded negative but are really very positive, and
I don't think Jack Kay discussed those issues enough.
Positives:
1) Increased their gross margin and expect it to be maintained.
2) Intel motherboard development complete and shipping this quarter.
3) Notebook business increasing rapidly. PTEC now has 45% of the
non-PC card BIOS and related business and all competitors combined
have only 11%. Revenues about the same as in desktop business.
4) BIOS market share should be 50% this year (double from last year).
5) Compaq Presario sales very strong (recent Comaq/PTEC deal).
6) DEC is now an all PTEC shop. Got rid of another portable vendor.
7) PICO business is accelarating (150% growth). PTEC/NEC business is
developing quite nicely. Motorola is a customer for a vehicle
application. A couple of significant press releases due out soon
in point-of-sale applications. Recent Japanese acquisition was
done to strengthen PICO business in Japan, where most of the new
technology first comes to market. Smart phone applications will
start ramping up (projected market of 40 million units by 2000).
8) Stock repurchase this quarter.
9) Virtual Chips signed up IBM and Apple this last quarter.
Negative:
1) Virtual Chips is behind a quarter (but now has completed the
entire USB product suite). VCI business in Japan fell short.
(However, they feel that they're still on target for 150% F1997
growth as earlier forecast).
2) Most of the $1 million revenue shortfall was for OEM consumer
products, specifically Telephony which is being phased out.
(PTEC paid for this product through royalties that cut into
their overall gross margin and this product wasn't tied very
closely to their core products, so I see this as positive).
3) They don't expect any Intel motherboard revenue "surprises"
until F1998. In fact, the CEO stated that he'd be happy if
Intel didn't increase motherboard shipments because they get
paid a fixed revenue regardless of quantity to a certain volume
and incremental royalties are very small per unit.
I was disappointed that the CEO didn't elaborate on the additional
strategic benefits to the Intel deal besides the direct revenues.
He mentioned "firmware links" and that PTEC would be able to "add
value" but didn't spend much more time on this issue.
Jules and I discussed this a couple days ago. Just as the motherboard
business is a love/hate business with Intel (it helps them sell a lot more processors beyond those in the motherboards but the direct profit
margins are significantly smaller), PTEC will advance their system
related business well beyond the motherboard deal because of the
motherboard deal (which has smaller royalties than they get elsewhere). Besides the additional attraction to "in house" BIOS
manufacturers, PTEC will benefit by now having enough market share and be tied close enough to Intel to make PTEC products the defacto standard. Applications vendors will now be able to develop products around PTEC BIOS and other system software knowing that they have a standard. A great example of this is the Cybermedia alliance in
PC self-help/diagnostic software.
This is a difficult story to tell and it's a lot easier to show it,
and I'm very optomistic that it will unfold over the next several
quarters.
BTW, I heard a similar comment from PTEC about not seeing much of
AWRD in the U.S. as you heard from SYSF. Interestingly enough,
I've also heard the same about SYSF not being very visible to
PTEC in deals that SYSF seems to brag about.
As far as the only other competitor, AMI, is concerned, I think they
summed it up best when the Intel/PTEC alliance happened. AMI said
that it will hurt them bad. Prophetic?
To sum up the conference call, I don't expect the analysts to understand the value so the stock probably won't double overnight.
But with 39% revenue growth, 38% EPS growth, and 54% net income
growth, even an unsophisticated analyst should be able to see that
this stock is undervalued even at $20. |
