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Technology Stocks : Neoware Systems -- Ignore unavailable to you. Want to Upgrade?

To: D. K. G. who wrote (202)	8/29/2002 3:42:55 PM
From: Dennis	Read Replies (2) \| Respond to of 256

pe is expensive..... bigcharts.marketwatch.com

To: D. K. G. who wrote (202)	8/20/2003 9:41:02 PM
From: D. K. G.	Read Replies (1) \| Respond to of 256

The New America Thursday, August 21, 2003 Neoware CEO Uses Buys To Fatten His Firm's Thin-Client Business BY MARILYN MUCH INVESTOR'S BUSINESS DAILY It's been less than two months since Neoware Systems Inc. (NWRE) made its last buy, and Chief Executive Michael Kantrowitz is already on the prowl for another. Neoware makes thin-client computer systems for businesses. Thin-client systems are desktop computing devices that connect directly to a server, rather than operate with their own hard drives. The gear performs the same functions as client/server personal computer setups such as Windows applications and Internet access. But it costs less, requires less maintenance and includes more security. Neoware has made four acquisitions since June 2001. Its latest came on July 1, when it paid $9.8 million cash for Pericom Holdings PLC. Pericom provides software that lets a thin-client device connect to older computers. In the past, Neoware licensed Pericom's software. Kantrowitz eyes more buys as he moves to build Neoware's position in its field. The King of Prussia, Pa.-based firm targets businesses, such as call centers, with thousands of remote locales and a large number of users to do various tasks. Neoware fared well even during the tech downturn, when companies cut back on tech spending. It turned its first profit in fiscal 2002, earning 28 cents a share. Analysts polled by First Call expect earnings to come in at 44 cents a share for fiscal 2003, which ended in June. Those results are partly due to a marketing alliance that Neoware struck with IBM Corp. (IBM) in January 2002. The deal names Neoware the preferred provider of thin-client appliance products to IBM and its customers. As part of the deal, Neoware has licensed IBM's technology to develop the next generation of thin-client appliance products. Kantrowitz recently spoke with IBD to discuss that relationship and other recent events. IBD: What does the Pericom acquisition bring to the table? Kantrowitz: This was a very important acquisition. This is the software that lets a thin-client device replace a green-screen terminal like you see in airline reservation systems. With Pericom software, our thin-client systems can directly connect to mainframes and replace that green-screen terminal. It also lets the user connect to the (Internet) or run e-mail or a Windows application, which they can't do on a green-screen terminal. IBD: What's the market potential for Pericom's software? Kantrowitz: We figure there are from 30 million to 50 million green-screen terminals installed around the world, and none of those can connect to the Net and run a Windows application. Pericom makes the most popular software of its type in the thin-client market. It's installed in about 85% of almost all the thin-client devices shipped. This purchase gives us ownership and control of that software. The revenue potential is significant. Pericom software also runs on companies' PCs. So we can now offer our customer the terminal emulation software they can use on their PCs. Pericom gives us another very high-margin revenue stream. This software has a 90% plus gross margin. We can leverage (it) to provide better and more complete solutions to our customers. IBD: What's your acquisition strategy? Kantrowitz: We have $45 million in cash and no debt. Our business is growing, and we don't have capital expenditures. So we have the capital to make additional acquisitions. The current leader is (privately held) Wyse Technology. We want to do acquisitions that build our leadership in the thin-client terminal market and give us new technology to sell to the same customers through the same channels as part of the same sale. We're always looking at acquisitions. In July, we raised $26 million through a private placement (so we'd) have cash to do additional acquisitions. We've integrated (buys) efficiently. We purchased the assets and no liabilities. There have been no restructurings or layoffs as a result. We didn't acquire revenue streams, but interesting . . . products and new technology to let us sell more of our products to customers. IBD: Tell me more about the IBM alliance and how it's enhanced your business. Kantrowitz: IBM sells our products to its customers. Our revenue with IBM has grown significantly, and it's made a significant contribution to the growth and success of our company. We preannounced that our revenue for the fourth quarter will be more than $1 million higher than (our) previous $15.3 million projection. IBM has good relationships with all the major enterprises we're targeting. The alliance provides us access to larger customers and transactions than before. For instance, (in July) Federated Department Stores Inc. said it's rolling out our thin-client (devices). That business was brought to us from IBM. Before the IBM alliance, the size of the average transaction was about 500 thin-client devices. Now they're much larger: between 1,000 (and) 2,000 or more. IBD: What's your growth strategy? Kantrowitz: Our growth is mostly . . . organic, (though) we have significant revenue (opportunities)from acquisitions. We believe we can develop new revenue streams with Pericom's intellectual (property). We're investing in (research and development). We just introduced a product called the ThinPC. This is software that lets customers (extend) the benefit of thin-client computing to existing PCs. Companies can . . . turn their older PCs into thin-client (devices) without replacing the hardware. (As a result), it lowers the cost of buying thin-client (systems). Since we introduced it in June the initial response has been very strong, and we believe over time . . . it will be a strong contributor. IBD: What's the climate for your business? Kantrowitz: Tech spending has been down, but companies are still spending money. Our message is we can save companies money upfront in total cost of ownership and in administration expenses and ongoing capital expenditures. Thin-client alliances also offer increased security and let companies do more with lower budgets. The fact that companies are constrained in IT spending is making them look more at thin-client computers and consider them as an alternative to PCs. We see more tech companies reporting the climate is getting better. We believe there will be a resurgence in IT spending in this year's second half and into 2004.