Zi in the spotlight, in a feature article at Stockhouse
stockhouse.com
Increasing Revenues Promise Further Stock Gains For Zi Corp.
Zi Corporation has suffered relative financial anonymity until the beginning of this year. The
company, which makes technology enabling short messaging, email, e-commerce, and other
applications for the Internet and information appliances in many languages, has not enjoyed nurture
and publicity from a traditional investment banking relationship. In an exclusive StockHouse
interview, CEO Michael Lobsinger explains that a new association with Lehman Brothers will only
add to the company's positive market reputation. The company's intuitive language processing
software is being aggressively marketed to the exploding global wireless sector. Contracts from
Ericsson and Alcatel will positively affect the bottom line, contributing to the bullish buzz heard
about the company.
Vancouver, BC, February 29 /SHfn/ -- Zi Corporation [ZICA], a Calgary, Alberta-based maker of embedded software technologies allowing ideographs and other
linguistic characters to be entered on traditional keyboards or keypads, has rapidly increased its market capitalization during the past 12 months. The company has moved
from a 52-week low of less than US$1 to a high of $40.88 February 7. In fact, it recorded gains of more than 1000%, outpacing the performance of all major North American
indices in a very bullish year.
The promise of royalty revenues, detailed in a series of news releases trumpeting Zi's successes in China, has bolstered the market's support of the company. Its efforts to
move from research and development operations toward a royalty-based revenue model have occurred coincidentally with the Street's enthusiasm for the Chinese market.
The company's CEO, Michael Lobsinger, says, "All of a sudden the market became aware of China, became aware of the wireless application space, and found that we
were a major player in it."
When asked how he will ensure Zi maintains its market momentum, Lobsinger is sanguine, responding that he will continue to concentrate on the process of building
relationships, confident that the market will look after the stock. The reply may sound cavalier, but Zi has achieved its substantial stock valuation and staggering revenue
growth without the benefits of institutional banking support. Prior to its January announcement that Zi had engaged investment banker Lehman Brothers [LEH] to act as
its exclusive financial advisor, the company had raised all the capital it needed on its own. Consequently, the firm had failed to register with many in the financial
establishment until the stock began to outperform the indices.
For six years, Zi Corp has been working to develop its language enabling technology. With the vision that any company could sell anything to anyone in any language, the
company first targeted the vast market opportunity represented by China. According to Lobsinger, "We concentrated on the Chinese market because that was the largest
market and the most difficult, and it was the market that had no legacy of product." The technology, which is called eZiTEXT, uses an 8-stroke set to recreate or intuitively
construct any one of the 50,000 or so ideographs in Zi's Chinese character set. For a detailed demonstration of the software, please click here.
The Chinese version of eZiTEXT was the model for the legion of languages that have followed. Using the same intuitive search engine
structure, which allows input keystrokes to build characters and search for words, the company now boasts 17 languages including
Japanese, Korean, and 14 Romantic or European languages. Zi engineers are currently at work on several other languages with unique
character sets or alphabets - Greek, Arabic, Hindi, and Tamil. By the end of this year, Zi will have software that allows users to interact with
e-mail, the Internet, pagers, mobile phones, and interactive TV set-top boxes in 30 different languages.
Much of the buzz heard about Zi during the past several months has included mentions of the business' acceptance in China. On January
25, Zi announced it had received approval for its Chinese language processing software from the State Language Commission in China. After
years of careful and friendly contact, Lobsinger is proud to say, "We've got the relationship with the Ministry of Education through the State
Linguistic Commission. That's been years to develop. We're the only company in the world - including any Chinese company - that actually
fits the code that's been set down by the Chinese government for creation of characters."
There are other companies with solutions to inputting Chinese characters - hundreds of them according to Lobsinger. But, none of these entities has attacked the
marketplace with the same vigour as Zi. In addition, many previous input systems were based on English character input. The user had to know some English in order to
approximate the desired Chinese sound using the keyboard. After extensive searching, one could locate the equivalent Chinese characters.
Official Chinese government recognition was a coup, but Zi's technology has been lauded by two large European mobile phone makers, Alcatel [ALA] and Ericsson
[ERICY]. The fact these wireless heavyweights chose to include the Zi product, supports the company's contention that its products are the most intuitive language input
systems on offer. The arrangements with Alcatel and Ericsson provide a solid foundation for the company's growth plans. "Growth outside of China, or growth not
specifically targeted to the Chinese market is twofold. One is companies like Alcatel that have a global operation and sell in different languages no matter what the product
is. The second one is Chinese OEMs."
Lobsinger says that Chinese original equipment manufacturers are anxious to target foreign customers in addition to their own massive domestic markets. Relationships
with seven manufacturers in China enable those OEMs to "compete globally with product in other languages."
Communication Intelligence [CICI], which appears to be a competitor on the surface, makes software for recognizing handwritten characters in Chinese, Japanese, and
Western European languages. The technology converts handwriting into digital text, but has no facility for inputting messages. CICI, trading at about $8 on the NASDAQ
Small Cap market, announced February 24 that it had joined a long list of companies agreeing to work with the Symbian alliance. Zi announced February 15 that because
of its engineering expertise with the Symbian platform, Psion, and its preeminent position in Asia, it had been selected for the Symbian Competence Center program.
Unfortunately, the market did not react with enthusiasm to the Symbian announcement. The four original Symbian partners - Ericsson, Nokia [NOK], Motorola [MOT], and
Panasonic - formed the venture to adopt a non-Microsoft [MSFT] operating system that the owners could utilize to power their wireless devices. Investors aren't yet aware
of the Symbian name as the venture is not yet a public company.
The largest manufacturer of PCs in China, Legend, has called its newly launched set-top box the Chinese Family Computer, after an idea suggested by Zi took hold. "You
have Zi technology embedded on the handset that drives the set-top box, so that when you turn on your television - and there's already 450 million of them - you press
menu and you get the Chinese menu and now you're using [the eZiTEXT] 8 strokes on your handset just like you would on the cell phone."
Lobsinger takes great pains to point out that Zi technology has the potential to reach 50% of the world's population right now. He also thinks that investment firms have not
yet fully appreciated the potential inherent in the company's education portal. On December 22, Zi unveiled plans for its recently acquired subsidiary, Ozlearning. The
former Beijing Oz inked an agreement with the Continuing Education Institute of the China Central Radio and Television University (CRTVU). The CRTVU plans to make
many of its courses available online through the Ozlearning site, and to diminish its reliance on television distribution.
Zi will be, "The exclusive manager of the portal that is going to manage the delivery of all the courses. We have an exclusive management
agreement in what I'll call the largest educational portal probably in the world," said Lobsinger. The eight-year agreement will allow Zi to earn
income from three different streams - courseware, advertising and banner revenue, and database management for the potential mammoth
e-commerce applications. With 3.3 million students and 11.75 million teachers who must upgrade their skills every two years, Zi has
potentially 15.05 million eyeballs.
The company last reported quarterly results in November 1999. For the three months ended September 30, 1999 - Zi's Q3 - revenues were
higher than the same period in the prior year by 112%. On income of $772,881, the company recorded a loss of $0.03. The increases
reflected the first royalty payments from the arrangement to put the Zi technology on all five platforms Ericsson sells in China.
Fourth quarter results, due on March 15, are predicted by the CEO to be greater than Q3 numbers, as the company is moving from its
development stage to a product sales phase. The revenue model is identical in each contract Zi signs. "In every case we have signed an
agreement that is basically broken down into four. There is an initial licensing fee. There is an implementation fee, or a non-recurring engineering fee. There is a royalty on
every product. Then there is a maintenance and support fee. The prime source of our revenue will be a royalty on every product." With the growing acceptance of wireless,
and with more languages to offer potential clients, Lobsinger says that record growth will continue into the year 2000.
The stock is trading about 13% below its 52-week high on both sides of the border, but may receive a boost if year-end numbers reflect the positive growth Lobsinger
expects. Investors may be further heartened if Zi receives approval to jump from the NASDAQ Small Cap Market to the National Market. The company made the application
to move to the National Market several months ago, and awaits NASDAQ's decision.
The relationship with Lehman Brothers is a mutually beneficial one. The private placement stewarded by the investment bank increased institutional holdings of Zi stock in
addition to raising $25 million. New stakeholders include the Ontario Teachers Pension Fund, Morgan Stanley Dean Witter, and Essex Capital. Zi's place in the wireless
market had enticed Lehman Brothers. "Lehman wants to establish a relationship because we're in the space that they're playing in. They have identified the WAP [wireless
application protocol] space. They have identified arenas like Bluetooth ? and the convergence of all these technologies. And we are a player in that game."
The arrangement with Lehman provides for research coverage on Zi, but the bank is still in the process of selecting the most appropriate analyst. Meantime, Zi has some
cash on hand, and is looking for an acquisition that "will enhance our product offering." With support from the establishment and a virtually unlimited market that includes
few competitors, the stock surely has further to go. |
