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Technology Stocks : Phoenix Technologies (PTEC) -- Ignore unavailable to you. Want to Upgrade?

To: Tim Oliver who wrote (3076)	1/20/1999 10:37:00 AM
From: Mark Brophy	Read Replies (2) \| Respond to of 3624

You were the inspiration for the contest. In post 441 at Message 756452, you made the query that inspired the contest and caused 2 years of flame wars: Mark M. and anyone else here, if you can find ANY stock as obviously undervalued as PTEC, I'll be glad to take a look. You declined to participate last year, probably due to the trauma of seeing Phoenix perform well below expectations. Will you participate this year? The purpose of the contest is to make mutual funds obsolete. Any investor with at least $50K can buy the 15 stocks in the Phoenix thread portfolio and be adequately diversified. The net has reduced commissions from $100/trade to $20 and this thread has destroyed the argument that individuals can't invest better than the pros. Here were the expectations of Phoenix 2 years ago (in italics) and how it actually turned out: * Trailing PE of only 20 with 54% net income growth last quarter (even with major R&D and investment costs). R&D went through the roof without corresponding revenue increases. Earnings growth stopped and the P/E has rose to 23 in frothier market. Phoenix has been unable to react to the shift in product mix from their traditional high price BIOS to the under-$1000 PC low price BIOS. * Have two divisions representing about 20% of their revenue, each market leaders and growing at least 75% a year in markets projected to grow 1000% over the next 3-4 years (PICO & VCI). VCI had a stagnation period and has resumed strong growth, albeit less than 75%. Synergy from core business didn't materialize, so the biggest competitor (Sand) was bought. Pico continued strong growth for 18 months and has stagnated in the last 6 months. * Have another division with 45% market share and all other competitors combined have only 11% (BIOS & related for notebook computers other than PC Card) in the fastest growing PC segment. Phoenix continued leadership in notebooks, but prices fell and companies such as Toshiba continued developing BIOS in-house. Even notebook vendors such as IBM and Compaq that transferred their desktop BIOS to Phoenix retained their notebook engineers. * Their core business market share will grow from at least 25% to 40-50% this year (PC BIOS). Compaq and IBM desktop BIOS design wins substantially increased market share. After Award acquisition, Phoenix now has 80% market share. * Have a strategic alliance with the market leader in another niche (CYBR), with the main competitor (SYSF) trading at about 2 1/2 times the PE of PTEC mostly based on their product offering in this one area. What's particularly unusual is that PTEC/CYBR have already taken away business from the competitor in what was described as their "key account" even before product shipped! Market niche was exposed as a "snake oil" fraud and SystemSoft and CyberMedia went out of business. * Have a 7-year strategic R&D relationship with the 85% market leader in PC processors (Intel) to co-develop and provide their core products for the leader's newest technologies. USB and 1394 haven't been accepted by the market as fast as anticipated. Merced was delayed for 2 years and Intel fired the guy in charge of the project. Anticipated competitive advantage from Intel motherboard contract didn't materialize due to requirement that Phoenix age code for 90 days, although contract has been renegotiated and aging may no longer be necessary. Competitive void was filled by Award and Phoenix was forced to buy them at a high price and endure merciless pounding by the trustbusters. * Have NO major analysts covering them and only one "full-time" analyst. Often trade at less than 20% of the volume of the next largest competitor only 1/2 their size. The only remaining competitor is a private company, AMI, a small fraction of their size. Phoenix crushed them in Intel motherboards and Award crushed them in remaining business, so they're no longer a factor. Award and Sand acquisitions piqued interest of investment bankers and 3 analysts cover the company (2 "buy" and 1 "hold"). Trading volume is now 120K shares daily, which is about triple the volume 2 years ago. Phoenix no longer suffers from lack of attention. * Gross margin increased to 85% last quarter, are generating tons of cash from investments and operations, and plan to resume their stock buyback program this month. Gross margin remains high, but that's par for the course in software. Cash hoard continues to grow, but only a small amount has been repurchased to fund a portion of the employee stock option program. Phoenix could've bought more stock to cover Intel warrant obligations without violating SEC pooling rules, but wisely opted not to due to likelihood of stock price decline. CEO and CFO have now changed their tune and bought shares for personal accounts at 15% higher than current price, although the CFO recently resigned.