The RagasReport on Fri, 29 Jun 2001 19:59:26 +0200 (CEST)

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[Nettime-bold] THE RAGAS REPORT - Mobile Software Stocks - The Bridge Between Wireless and the Desktop

Title: RagasReport
Knowledge Capital For Next Economy Architects
Editor: Matt Ragas
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In This Issue  
  Commentary: Mobile Software Stocks- The Bridge Between Wireless and the Desktop
More Knowledge Capital: Oracle, Microsoft, IBM and Yahoo
Quote of the Week: Oracle's CFO Declares War on IBM's DB2


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This Week's Commentary


Mobile Software Stocks- The Bridge Between Wireless and the Desktop

Handheld and wireless devices are seemingly everywhere these days. From Blackberry pagers and Palm PDAs to data enabled cell phones and hybrid PDA/cell devices, everyone seems to be joining the wireless revolution.

While the first phase of this revolution centered primarily on the consumer, the second phase of the data driven wireless Web is likely to be led by businesses - both large and small.

Get ready for the wireless corporation.

In other words, instead of simply retrieving stock quotes and sports scores on wireless devices, employees will instead constantly swap valuable business information from wireline legacy databases to a diverse range of wireless platforms all in real time.

Growth is not an issue for this sector.

In the U.S. alone, industry analysts expect the number of wireless data users to grow from 3 million to between 15 and 36 million by 2004. Regardless of this fact, the valuations of mobile software stocks have plummeted along with the rest of the tech sector over the past year.

So far, Wall St. seems to have had a hard time separating the brutal price competition taking place among device makers like Palm [PALM] and Handspring [HAND], with the more attractive and less cutthroat margins of mobile software providers. These stocks are battered but not beaten.

With this in mind, then, I decided to take a look this week at three of the largest pure play mobile software stocks- Pumatech, Extended Systems and Aether Systems. After much slicing and dicing of this group, let's see what my analytical microscope found out.

Pumatech [PUMA]

The past year for Pumatech hasn't been easy. In fact, the collapse in tech valuations has left this mobile data synchronization player looking much more like a timid house cat then a wild cat lately. That being said, Pumatech still has a very widely used product in Intellisync and has actually become the synchronization standard for large handheld players like Casio and Research in Motion [RIMM]. In addition, Pumatech now holds a total of 15 synchronization related patents.

While tightening corporate IT budgets are having their effect on Pumatech, sales for the most recent quarter still jumped 29% to $10.3 million. Another small positive was the fact that the company's loss for the quarter dropped to $9.2 million or 11 cents compared to $10 million in the same period last year. Sequentially, Pumatech's sales actually decline almost 9% last quarter. Year over year, though, Pumatech's 2001 sales are still expected to rise over 35% to $42 million.

The wireless hype of late 1999 and early 2000 shot Pumatech's share price to the moon. At a recent price of $3 per share, though, PUMA is now down 90% from its 52-week high. While Pumatech is not predicting breakeven next year, the company is still well stocked with capital- having ended last quarter with $52 million in its coffers. Sales should grow 40% next year to $59 million, while losses shrink to 20 cents per share for the year. PUMA shares look tasty to me at these prices.

Extended Systems [XTND]

Few companies ever get to know what it feels like to be left at the altar, but Extended Systems is one of them. After announcing plans to be acquired by Palm Inc. [PALM] back in March, the two companies surprised investors by calling off the deal last month. The botched deal now leaves this mobile information management company in an interesting position. Will it seek out another merger partner or will it attempt to continue to play the wireless software game on its own?

On the surface, Extended would appear to have the tools needed to stay independent. After all, the company boasts a blue chip customer list, which includes the likes of Proctor & Gamble [PG], EDS [EDS] and Daimler Chrysler [DAJ] among many others. On the other hand, Extended currently faces declining overall sales and a limited cash position to worth with. The company responded to this situation earlier this month by signing a deal to sell its legacy printing solutions business, as well as fire 15% of its worldwide workforce.

Sales are expected to decline roughly 12% to $10 million or so next quarter as Extended reports a pro forma operating loss of between $2.2 and $2.6 million. While Extended ended last quarter with only $4.4 million still left in the bank, the firm still has a $10 million credit line to tap. In addition, with a recent valuation of approximately $70 million, Extended is only trading for less than two times its projected 2001 sales ($47.5M). This is a new acquisition just waiting to happen.

Aether Systems [AETH]

Aether has gone from wireless savior to profitless pariah in only a year or so. Shares in the wireless products and services provider are now down 95% from their 52-week high and are currently teetering at an all time low. Wall St.'s confidence in Aether's ability to actually turn a profit looks highly suspect at this point. Out of 23 brokers currently following the stock, a staggering 12 of them currently have a HOLD (read- sell) rating on the company's shares. Even so, Aether still has an interesting story.

Founded in 1996, Aether products and services allow individuals to receive real time data on wireless devices. Clients include Charles Schwab [SCH], Office Depot [ODP] and the US Postal Service among many others. Sales shot up a staggering 600% to $30.7 million last quarter. While this was certainly impressive, Aether expects to see only "flat to modest" revenue growth for the rest of the year. Even with this being the case, the company still expects to be cash flow positive by the third quarter of 2002. This would be great. We shall see.

The fact remains, though, that right now at least, Aether is still a ferocious cash burning hog. Aether lost $46.8 million in the last quarter alone. Thankfully for AETH shareholders, the company still has $730 million in cash on hand and expects to reach breakeven next year with $550 million still on hand. While this goal isn't impossible, the analyst community still seems decidedly bearish on Aether after it dropped the ball on meeting its estimates earlier this year. For now, this looks like one wireless name to avoid.

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More Knowledge Capital


YAHOO STUCK ON BECOMING HOLLYWOOD: Two months ago, when Yahoo [YHOO] announced its new choice for top dog- Terry Semel- I expressed to everyone that I was skeptical about the selection. I just didn't see the need for a former Hollywood honcho- Semel ran Warner Bros.- to be leading Yahoo's march back to profitability. If anything, this looked like the move of a company looking to sell. Judging by the recent moves Semel has made or is planning to make, I still feel much the same way. Uneasy and uncertain about Yahoo's future. reported on Wednesday that Semel is now planning to make job offers to former Entertaindom executives Jim Moloshok and Jim Banister. For those needing a quick refresher, Entertaindom was an entertainment site launched by Warner Bros. that after much hype and noise ended up largely being a big flop. After the AOL-TW deal was completed, AOL was smart enough to significantly scale back the struggling portal play. Results -not hype- is what Yahoo so sorely needs at this point.

It worries me that these are the people Semel apparently wants to bet on for a Yahoo turnaround. He has already hired former Entertaindom exec Jeff Weiner into Yahoo's corporate development group. Until I see Yahoo really able to piece together a series of successful premium services, I will unfortunately continue to have to stay away from YHOO shares. Too much of a dice roll now. I really want Yahoo to return to its past glory and prove skeptics wrong - myself included.


Buy It Here!

ORACLE THUMPS ITS CHEST AT IBM: If Oracle [ORCL] chief Larry Ellison is ever quiet for more than a few weeks, we can assume one of two things. Either Ellison is gravely ill or Ellison is out sailing his yacht or flying his jet. Thus, it was of little surprise this week when the Oracle camp and Ellison turned their guns squarely on IBM [IBM]. Speaking to analysts earlier this week, Oracle CFO Jeff Henley attacked IBM telling the crowd "we haven't had a good technology fight in a few years. We're kind of relishing this."

Of course, talk is cheap and so far, IBM's DB2 has clearly been gaining momentum and market share lately against Oracle's more expensive solutions. Remember. While Oracle talks a good game about its sexy applications suite, database sales still account for 75% of its total business. Microsoft [MSFT] and IBM are together double-teaming the very core of Oracle's foundation. This still didn't stop Ellison from coming out earlier this week and re-affirming his company's forecast of 50 to 100 percent growth in the applications business.

Ellison also used a news conference on Tuesday to tell reporters that the current quarter "looked a lot stronger" then the previous quarter and that the company is seeing "a lot of the big deals come back." While this is clearly good news overall for software stocks, Oracle's own growth story still looks shaky to me at this point. After all, the firm's applications business declined 24% last quarter and database sales seem to be treading water. So does Oracle really deserve a forward PE of roughly 40 right now? A tough call in my book.


Quote of the Week

"IBM started it. We are going to finish it. I don't think we're a peacetime company. We're a wartime company. We like to fight."

-- Comments made this week by Oracle EVP George Roberts regarding the growing rivalry between Oracle and IBM for leadership in the database arena.

June 29, 2001














































































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About Matthew W. Ragas: Ragas is President and Chief Analyst of Matthew Ragas & Associates, an Orlando, FL based strategic advisory and venture development firm. He was previously the founding editor of Raging Bull and is the author of the new e-business book Lessons From the E-Front from Prima Publishing.

The RagasReport and Matthew Ragas and Associates, are not a registered Investment Adviser or a Broker/Dealer. Readers are advised that the report is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. The opinions and analyses included herein are based from sources believed to be reliable and written in good faith, but no representation or warranty, expressed or implied is made as to their accuracy, completeness or correctness. Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report should be independently verified with the companies mentioned. In addition, we receive no compensation of any kind from any companies that we mention in this report.

Copyright (c) 2000-2001, Matthew Ragas & Associates.
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