BSQUARE Could Fall Further (BSQR)

May. 8.06 | About: BSQUARE Corporation (BSQR)

BSQUARE (NASD:BSQR) provides software solutions for smart devices that run Windows Embedded and Windows Mobile platforms. It has built these onto hardware from Sharp, Microsoft (NASD:MSFT), and AMD (NYSE:AMD). The company obviously relies heavily on the release and adoption of the Microsoft platforms.

After three years of tepid growth, BSQUARE hit the wall in the last quarter. Revenue for Q1 06 dropped 9% from the immediately previous quarter to $11.6 million. The results were up from $9.8 million in the same quarter last year, but the company showed an operating loss of $986,000 compared to the loss of $604,000 a year ago.

The gross margins in this business are really poor. In a good quarter, they are 20% of revenue and that does not leave enough for covering the company's expenses. Now that revenue growth has slowed down, the opportunity for the company to make a profit seems further and further away.

Management blamed the poor results on contracts that were delayed and should show up in the second half, but with a track record of slow growth that is clearly a "show me" deal for investors. The company hopes that sequential growth will move back to 5% to 10%. That could still leave a long road to profits.

According to Yahoo!Finance, revenue growth from 2003 to 2004 was only 3.5%, and from 2004 to 2005 it was 10% hitting $42.9 million. Hardly hot tech company growth. The company had operating losses throughout the periods.

The stock has dropped from its 52-week high of $4.06 to $2.40. That is still above the low for the period of $1.64.

The company's business is at the heart of the digital revolution with customers like Motorola, Panasonic, Samsung and NEC.

The fact that the revenue at BSQUARE is not growing faster speaks volumes. The chance that this stock will move up much seems terribly slim.

BSQR 1-yr chart:

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of and Edgar Online. He does not own securities in companies he writes about. He can be reached at