For all the doom and gloom in the world, not every tech company is looking to enter the witness protection program.
Take Waterloo’s Sandvine (OTC:SNVNF), for example. Key customer orders appear to be coming back in certain areas. Huge revenue concentration, mind you, with Comcast (CMCSA) generating 41% of sales, and two channel partners doing another 43%. But, I’m not going to complain about customers wanting a huge chunk of someone’s product. The currency swing won’t have hurt the revenue line, either; assuming they haven’t used a currency-hedging program.
In fact, in Sandvine’s case, year/year growth may well be mostly due to the currency moves. Not that this is anyone’s fault, but a key thing to think about when you look at companies with C$ costs and unhedged non-Canadian revenue.
One U.S. dollar was worth C$1.237 on November 30, 2008, which was the last day of the quarter (the USD averaged C$1.218 for the month). In 2007, that same U.S. dollar was worth just C$1.0008 (averaging C$0.967 for the month.)
Just think what the impact on the top line is if 41% (C$7.6 million) of its revenue for the quarter came from Comcast in the form of U.S. dollar purchase orders. That would work out to be something like $6.2 million of Comcast orders, which would have been worth C$5.995 in November 2007 (using the monthly average), when the company’s revenue for the quarter came in at C$17.1 million.
The currency swing meant that C$1.27 million of Q4’s revenue growth was solely due to the currency swing on the Comcast order - a full 7% of the reported 9% year-over-year growth in revenue.
In Waterloo, MKS, Research In Motion (RIMM), Open Text (OTEX) and Descartes (DSGX) all report their financials in U.S. dollars, while Dalsa (OTC:DLSAF) and Arise (APNVF.PK) report in Canadian dollars.
This report is from GMP’s Research Analyst:
SVC C$0.85 Target: C$0.95
Q4/F08 Small Loss on Good Sales Strength
Results Improved: Sandvine’s revenue was stronger than expected at C$18.6mm, +9% YoY, and the company approached breakeven with an EPS loss of $0.01. We had forecast a loss of $0.02 on revenue of $15.2mm.
Segments: Revenue grew sequentially in Cable, DSL and Wireless, which is good. Comcast returned as a single dominant customer at about 41% of sales. Channel partners Huawei and Mitsubishi generated 43% of sales.
Spending to Rise: Sandvine expects to continue to boost spending to fuel growth, which will likely delay profitability, unless sales growth exceeds our forecast.
Valuation: Our target of $0.95 is based on 1.0x EV/sales.
Rating: As fundamental investors, we are attracted by recently improved sales at Sandvine and low valuation. But due to our forecast of futher losses, we will patiently await a return to sustained profitability or more compelling valuation. We maintain our HOLD rating.