Well, I looked into it a bit further. I couldn't find the articles about the interruption in their relationship, so it was wither longer ago than I thought or a figment of my imagination.
Here's an excerpt from their 10-Q that you referred to.
A small number of customers have historically accounted for a substantial portion of the Company's revenues. In June 1997, 3Com Corporation ("3Com") acquired U.S. Robotics Corporation ("U.S. Robotics"), to date the Company's largest customer based on the percentage of revenues, as a wholly owned subsidiary. Sales to 3Com (primarily U.S Robotics and its subsidiaries), accounted for approximately 24.5% and 44.4% of the Company's net revenues for the three months ended September 30, 1996 and 1997, respectively, and 48.7% and 42.9% for the nine months ended September 30, 1996 and 1997, respectively. The Company's three largest customers, including 3Com, accounted for approximately 38.3% and 52.7% of the Company's net revenues for the three months ended September 30, 1996 and 1997, respectively, and 63.2% and 55.2% for the nine months ended September 30, 1996 and 1997, respectively. Any reduction, delay or change in orders from such customers could have a material adverse affect on the Company's business, results of operations and financial condition.
In April 1996, the Company entered into an OEM agreement having an initial one year term with a wholly-owned subsidiary of U.S. Robotics Corporation (herein after all U.S. Robotics entities and subsidiaries are collectively referred to as U.S Robotics), which agreement superseded the previous agreement between the parties. This agreement was amended and restated in June 1996 and initially ran until April 1997 when it was automatically renewed for a one year term. The agreement renews automatically at the end of each one year term unless either party provides at least 60 days notice of its intention to terminate the agreement at the end of the then-current term. Under the terms of the agreement, the Company granted certain pricing incentives to U.S. Robotics in consideration for which the Company became the exclusive provider of fax, data, voice and telephony communications software for certain U.S. Robotics modems. In addition, under the terms of the agreement, U.S. Robotics has agreed to place Smith Micro retail products and commercials for such products on certain U.S Robotics compact disks. The agreement does not require U.S. Robotics or any 3Com-affiliated entity to purchase any minimum quantity of Smith Micro products and may be terminated by either party at any time for any reason upon 90 days written notice. As a result, there can be no assurance that U. S. Robotics will continue to purchase the Company's products. While the Company believes that it has been the principal supplier of OEM communication software products to U.S. Robotics, there can be no assurance that U.S. Robotics will not seek additional sources for such products in the future. Accordingly, there can be no assurance that sales to U.S. Robotics will reach or exceed historical levels in any future period. A substantial decrease or delay in sales to U.S. Robotics would have a material adverse effect on the Company's business, results of operations and financial condition. Assuming the number of units sold to U.S. Robotics were to remain at 1996 levels, in light of the pricing incentives provided in the agreement, gross revenues from 3Com with respect to products covered by the agreement could be adversely affected, although the Company believes that net income attributable to such sales would not be impacted negatively. There can be no assurance that 3Com's acquisition of U.S. Robotics will not result in a change in U.S. Robotics' purchasing habits, a decrease in new orders by U.S. Robotics, delays in orders previously made by U.S. Robotics, or the loss of U.S. Robotics as a customer entirely.
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The OEM product ordering cycle, from order placement to shipping, is very short. OEM customers generally operate under a just-in-time system and order software to be delivered as needed by their manufacturing operations. The Company's products are generally shipped as orders are received and, accordingly, the Company, which has historically operated with little backlog, does not consider backlog to be a significant indication of future performance. As a result, sales in any quarter are dependent on orders booked and shipped in that quarter and are not predictable with any degree of certainty. Moreover, the Company does not generally produce software in advance of orders and therefore has not maintained a material amount of inventory.
I believe the linkage is indeed worth watching. However, unit sales will be the best indicator, versus revenues. Also, Smith is a supplier to Zoom, Diamond, and Motorola. |
