Interphase's Strengths Are Starting to Show

Feb.10.09 | About: Interphase Corporation (INPH)

by Katharine Schildt

Income figures from fourth-quarter reports have been negative across the board. And the telecommunications sector has been no stranger to this ugliness.

For example, over the past year, Interphase Corporation (Nasdaq: INPH) has dropped almost 80%.

Fourth-quarter results showed revenues dropped $3.8 million compared to 2007 and soft broadband telecom income decreased almost 38% to $4.8 million. Adding to the “good news”, the company reported a net loss of $1.3 million, or $870,000 more than last year – compared to a net loss from the fourth quarter of 2007.

Unfortunately, it isn’t giving us a good picture of what’s really going on. Interphase is a leading international supplier of next-generation networking technologies – it designs high performance connectivity adapters for computer and telecommunication networks.

Last week, shares started climbing upwards, almost a 50% move since. And it could be just the start. I know what you’re thinking… All of its numbers are down, how could that be good? The stock movement makes no sense.

Not really – when you look at one thing: cash. Cash is king, but it’s also the lifeblood of small companies. Interphase has been doing everything they can to conserve cash and maintain the capital they have.

President and CEO of Interphase, Gregory B. Kalush, had this to say, “Even though 2008 has been a very difficult year to navigate and the industry as a whole has been struggling, we have done a very good job of managing our resources in these uncertain times. We reduced our spending early in the year – to conserve cash as the market picture grew dimmer – and reallocated resources toward high value opportunities throughout the year.

“As we look to 2009, we have a number of new revenue generating design wins which we believe will bolster our revenues in the relatively near term and should offset the declines that we have experienced recently from the ailing telecommunications industry.”

The company’s balance sheet continues to be solid. It has a working capital position of over $25 million – more than enough to fund the growth of its new products. And that could be all the advantage this company needs.

Like I said, cash is king for fledgling companies like Interphase. Without adequate financial resources, growth becomes a pipedream. And in this credit-crunched market, companies needing new capital often pay for it – dearly.

A small company with a healthy balance in the bank has fewer worries of survival. The market looks upon these rare firms favorably. And it looks like it’s starting to show.

That’s not the only thing Interphase has going for it. By the second half of this year, it’ll release its next generation of products. Its client list reads like a “who’s who” in telecommunications, and they should be clamoring to get ahead of the competition – with INPH’s products. But it gets better yet.

The telecommunications sector and United States infrastructure-based companies are getting a lot of additional interest thanks to the Federal Government. The Obama administration’s stimulus plan centers upon energy and infrastructure. And telecommunications are a crucial part in a “22nd century” country.

All of these things bode well for Interphase.

Shares could conceivably push higher in the coming weeks. Time will tell, but it may pay to put this one on your watch list.