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Strategies & Market Trends : Three Amigos Stock Thread -- Ignore unavailable to you. Want to Upgrade?

To: leigh aulper who wrote (16056)	6/29/1999 10:17:00 AM
From: rharris	Respond to of 29382

UPDATE! - Either Way We Win INSI $ 4.3/8 (NASDAQ) INSCI Corp, Unisys Announcement We received a copy of the joint Unisys/INSCI press release dated 28 June concerning Unisys' decision to start selling INSCI's COINSERV with its Clearpath line of mainframe computers. This is a highly significant announcement for both of the parties. At the heart of Unisys' business is its mainframe business, inherited from Univac and Burroughs. These mainframes compete directly against IBM mainframes and are used particularly by major banks and airlines worldwide. These mainframes (A series) are proprietary to Unisys. Its strategy is to move its customers to mainframes based on Microsoft's Windows NT operating system. Unisys' Clearpath mainframe line takes a creative approach. Inside each mainframe are two computers, one being the series and the other being a mainframe based on Windows NT. The Clearpath mainframe has common memory and input/output systems and operate as one entity. Unisys' strategy is to provide its customers incentives to gradually move their systems to the NT side of the mainframe. The major way get Unisys customers to migrate is to make software available which provides a compelling case for the customer to use the NT side. INSCI's COINSERV falls into this category, providing compelling functionality for the customer to use the NT side. As such it is strategic to Unisys because it helps move their mainframe line to the vastly popular Windows NT operating system and thus make their mainframes even more attractive in the market. This would give them a vastly more competitive product versus IBM. So the INSCI move for Unisys is a way of making it more competitive against IBM. On the way it adds significantly to gross margins for their mainframes, which would otherwise be under pressure as hardware margins continue to decline. So this move is also a part of a significant financial strategy for Unisys. The Clearpath strategy has been very successful for Unisys. Since it introduced its Clearpath series 3 years ago it has sold more than 6000 units and is selling them at the rate of 2000 a year. Unisys' mainframe business has revenues of some $1.5 billion a year, about one-fifth of its overall revenues but this is the core of its business. INSCI's products have never been sold through this area of Unisys so it represents a totally new set of revenues for both it and Unisys. Under the agreement, we understand that INSCI's COINSERV will be bundled with new Clearpath machines as well as being sold by Unisys into the installed base. Since Clearpath is sold mainly to the largest accounts in the world, this should be a major new revenue source. It should provide not only revenues from initial license fees but also from user license upgrades (as more users are added, which attracts higher license fees), add-on products and annual maintenance fees. INSCI will not make any forecasts public but we estimate that this could add an additional $5-10 million per annum in revenues for INSCI, without taking into account other internal growth. This would propel earnings to some $5 million a year or some …cents per share. This would result in a share price of some $… Gartner Group has already published its opinion that INSCI is very likely to be acquired by Unisys this year. Its argument is that in order to survive in the imaging business, which is strategic to it, it will be compelled to acquire an archiving product such as is made by its partner INSCI. We believe that this announcement makes the Gartner Group announcement even more compelling by adding INSCI's flagship product to Unisys' core mainframe business. We cannot see how Unisys could possibly acquire any other product since COINSERV is now not only its partner of choice for its imaging business worldwide, and also in its NT server business but now in its mainframe business. All this means that you can have it any way. The Clearpath announcement makes INSCI a compelling growth stock and an even more compelling acquisition for Unisys. Either way we see the stock at least doubling in the short-term and going higher than that in the medium term as the new Clearpath revenues kick in. Since the stock is still trading at below-average multiples for its peer group, we rate the stock a strong buy with a target price of $8.00 Bulls Make Money Bears Make Money Pigs Get Slaughtered