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Hello Readers,
Finally, oil’s price is abating but it still needs to drop under $50, and stay there, before the economy and the markets feel better, again. It’s nearing that point but, while we wait, the markets sink deeper and deeper. Since gloom and doom rule the day, don’t be surprised to see the Dow drop to sub-10,000, the NASDAQ to the low 1800’s and the Russell 2000 to around 560. Only then, when everyone has thrown in the towel, will the markets go on a major run, so says history.
And, yes, we know it has been two months since we have closed any positions in positive territory, but we are not overly worried, just yet. These droughts seem to occur once every eighteen months to two years; sort of in step with the markets.
Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.
Arotech (ARTX) (6/5/01). As we said in the last Newsletter, a lot of our picks have come out with good to great news over the last few months only to have their stock price mark time or even head south; it’s been that sort of market and ARTX is no exception as the company reports several million more dollars in new government contracts.
Art Technology (ARTG) (8/5/03). Schedules earnings call for April 28.
Targeted Genetics (TGEN) (10/5/03). Last issue, we placed this on the “Endangered List” as the stock sunk to 61¢; price is now back over a dollar on news of breakthrough research by a collaborator on Huntington’s Disease.
Insmed (INSM) (11/5/03). FDA grants priority review for SomatoKine; stock had been under a dollar but news gives it a little lift.
Actuate (ACTU) (1/5/04). To present at MySQL conference. Japanese subsidiary enters into pact with Worldwide Fund for Nature. Earnings call slated for April 28.
Crossroads Systems (CRDS) (2/5/04). Unveils Strong Box Monitor, a new network security appliance.
Somera Communications (SMRA) (2/20/04). Another company scheduling earnings news for April 28.
Oplink (OPLK) (2/20/04). And yet another with an April 28 earnings call.
Transgene (TRGNY) (3/5/04). Releases net cash expenditures and cash position as of 3/31/05. To present Phase II data of its MVA-UC1-IL2 cancer vaccine at ASCO annual meeting on May 13-17.
Open TV (OPTV) (3/20/04). OPTV and Bluestreak Network sign multi-year distribution pact for Bluestreak Dem platform. Enters into exclusive worldwide distribution agreement with Broadband iTV.
NexMed (NEXM) (4/5/04). Completes enrollment for study of topical anti-fungal treatment.
Palatin (PTN) (4/5/04). Presents data from preclinical evaluation of PT-15 for treating obesity. PTN and King Pharma announce formation of scientific advisory for PT-141.
AVI BioPharma (AVII) (4/20/04). Announces positive results in Neugene Antisense studies with collaborators targeting emerging viral diseases.
GoRemote (GRIC) (5/5/04). Simplifies secure remote access for Kirin Brewery.
EMCORE (EMKR) (5/20/04). Announces small form factor CX4 for 10GbE transmission over copper.
GlowPoint (GLOW) (5/20/04). GLOW and Sony unveil the first complete IP-based video communications solution for television broadcasters.
BindView (BVEW) (6/5/04). RAZOR team issues RapidFire updates for Microsoft and Cisco vulnerabilities. Releases management pack for Microsoft Operations Manager 2005. Cuts first quarter guidance, which doesn’t help the stock.
Avanex (AVNX) (7/20/04). To release quarterly numbers April 25.
Chordiant (CHRD) (9/20/04). Company and IBM collaborate to enable IBM’s Enterprise Workload Manager with service policy for Chordiant Enterprise Platform.
Trikon (TRKN) (10/5/04). Places its Sigma fxP metal deposition technology for evaluation in one of China’s leading foundries.
IGATE (IGTE or IGTEE) (10/20/04). UK subsidiary releases quarterly results. Gets delisting notice from NASDAQ, but this doesn’t look to be definite or a potential long-term problem; has to do with an accounting review.
Nova Measuring (NVMI) (11/5/04). Lowers first quarter revenue forecast, which puts pressure on stock.
Net2Phone (NTOP) (11/5/04). Expands NCTC’s cooperative platinum vendor status with the signing of masters services agreement. Stock upgraded by Stanford Research. Expands joint relationship with Motorola.
Applied Micro (AMCC) (11/20/04). Highlights innovative SATA RAID solutions at Intel Channel conference. Will release year-end results on April 28.
Zhone Technologies (ZHNE) (12/5/04). Sets earnings call for April 20.
B.O.S. (BOSC) (1/5/05). Subsidiary Odem signs contracts for about $2 million to supply electronic components in U.S. and Asia.
Brillian (BRLC) (1/5/04). Receives “going-concern” opinion from auditors.
Insweb (INSW) (1/20/05). Buys back stock from insiders Nationwide Mutual and Century Capital Partners.
Xcyte (XCYT) (1/20/05). Announces quarterly dividend on its preferred stock.
Mindspeed (MSPD) (2/20/05). Announces VoIP-over cable software for Comcerto family of VoIP processors. Sets earnings call for April 25.
Centra Software (CTRA) (2/20/05). CTRA’s annual user conference set for May 9-11 in Boston. Centra and Surgient partner to add virtual labs capabilities to CTRA’s Value-Added Solutions. Names new CFO.
Tumbleweed (TMWD) (3/5/05). Licenses email firewall patents to Proofpoint. Slates earnings release for April 21.
E-LOAN (EELN) (3/5/05). Sells its auto loans for $15 million and, as a result, should record a first quarter gain of $2.5 million. May use proceeds to pursue options such as loan securitizations or a potential stock repurchase. To report earnings on May 10.
Repligen (RGEN) (3/20/05). Company and the Stanley Medical Research Institute enter development accord for Uridine for Bipolar disorder.
Active Power (ACPW) (11/20/03). To announce first quarter results on April 27.
Our recommendations for this issue are another semiconductor and a company in the speech recognition business that some of you may recognize from the year 2000.
OPTICAL COMMUNICATIONS PRODUCTS, INC. (NASDAQ: OCPI) – $1.62. Twelve-month hi-low has been $3.83 – $1.66. Based in Woodland Hills, CA, with about 320 employees, this semiconductor has 112.8 million shares outstanding, $168.38 million in total current assets, $198 million in total assets, little debt, and $10.74 million in total liabilities. Institutional ownership is around 4%. One analyst rates the stock a “moderate buy”. http://www.ocp-inc.com
Call us dense as we once again add another semiconductor to the Current Positions Portfolio with the thought that someday, soon, the industry will catch another wind. Yes, Optical Communications Products, Inc. has more shares than we usually tolerate, but the balance sheet looks almost too good to be true. Unless, we did the math bass-ackwards, the stock’s book value is somewhere north of a dollar.
Founded in 1991, and trading on NASDAQ for over four years, OCPI designs and sells a line of fiber-optic subsystems and modules for the metropolitan area network (MAN), local area network (LAN), and storage area network (SAN) markets. The subsystems and modules are pre-assembled and are used to build network equipment; they are integrated into systems that address bandwidth limitations in the MANs, LANs, and SANs. OCPI’s products include optical transmitters, receivers, transceivers, and transponders that convert electronic signals into optical signals and back to electronic signals, enabling high-speed communication of voice and data traffic over public and private fiber-optic networks.
OCPI products are used for Ethernet, SONET/SDH, Fibre Channel and ESCON-based applications with a scalable platform of optical modules, including SFP, SFF, and GBIC packages. Its customers include communication equipment manufacturers such as Alcatel, Acterna, Ciena, Cisco, ECI, Extreme Networks, Fujitsu, Huawei, Nortel, Telrad, and Electronic Industries, Inc.
In early March, the company added a few key products to its portfolio. It made available its 100 kilometer OC-48 CWDM multi-rate SFP with integrated digital diagnostics monitoring (DDM) to support long distance MAN applications. At about the same time, OCPI introduced the 1.3 micron VCSEL-based product line that can increase the effective transmission distance of a Gigabit Ethernet link over legacy multimode fiber to 2000m.
For FY2004, ending 9/30/04, revenue was $57.14 million with $1.31 million in losses. During the 1stQT of FY2005, ending 12/31/04, revenue was $14 million with $31,000 in losses. The company has been guiding expectations downward for the last few quarters, which probably explains why the stock is near 52-week lows. OCPI appears to have buckets of money and seems like it is making some key product upgrades. When semiconductors get hot, so should this.
Our 24-month target for the stock is $3.00 to $3.50.
For more information, contact OCPI at 818-251-7100; investor.relations@ocp-inc.com
NUANCE COMMUNICATIONS, INC. (NASDAQ: NUAN) – $2.66. Twelve-month hi-low has been $6.16 – $2.60. Located in Menlo Park, CA, with about 280 employees, this software company has 36.1 million shares outstanding, $108.86 million in total current assets, $130.2 million in total assets, and $81.04 million in total liabilities, of which $52.7 million is for long-term restructuring accrual. Institutional ownership is around 36%. http://www.nuance.com
Sometimes we like a company’s technology and add it to the Portfolio despite a flaw on its balance sheet. Such is the case with Nuance Communications, Inc. and its flaw seems manageable.
Founded in 1994, and public since early 2000 when the stock hit $140, Nuance develops and markets a voice interface software platform that makes the information and services of enterprises, telecommunications networks, and the Internet accessible from any telephone. Its product line consist of speech recognition, voice authentication and text-to-speech engines; a voice platform and pre-packaged applications. The company also offers a range of consulting, support and education services that help its customers and third-party resellers and channel partners to develop voice automation applications that use its software products. Among its 1000 worldwide customers are British Airways, Avon, Nomura Securities, OnStar, Sprint PCS, United Parcel Service, Vodafone, Wells Fargo, Bell Canada, and China Telecom.
Over the last year or so, Nuance has received various technology awards from associations and trade magazines. The major resellers of its technology are Intervoice, Nortel, Edify, Avaya, and Comverse.
A few weeks ago, Nuance announced that Yell Group PLC had chosen the Nuance Voice Platform as the basis for its voice-enabled customer service systems. At the end of March, NUAN announced that Clarissa, the International Space Station’s new speech-powered virtual assistant, was created by using the company’s speech recognition software. In February, Nuance and the Belgium-based Acapela Group teamed up to offer international language text-to-speech software to European customers. Also, around the same time, Nuance and Angel.com formed a strategic pact to bring voice automation solutions to small and mid-sized businesses.
For FY2004, ending 12/31/04, revenue was $57.8 million with $26.2 million in net losses compared to FY2003 revenues of $55 million and $19.3 million in losses. Nuance has guided below expectations for FY2005 1stQT.
About half of the company’s losses seem to go toward R&D, and that may not be a bad thing. We also like the new pacts that Nuance has formed, lately, which could bode well for the future.
Our 24-month target for the stock is $5.25 to $6.00.
For more information, contact NUAN’s Karen Blasing at 650-847-0000; kblasing@nuance.com
Look for the May 5, 2005 Newsletter to be posted on 5/3 or 5/4.
Thank you,
George