Will Phoenix Technologies Rise Again? (PTEC)

Phoenix Technologies Ltd. (PTEC) is one of the dinosaurs of the software industry, being incorporated in 1979. We’re not sufficiently tech-savvy to explain in layman’s terms (or in any terms) what the company’s software does, but we’re pretty good at copying and pasting from the company’s 10-K:

“Phoenix Technologies is a global leader in the development, design, and support of software products that define, identify, and restore digital devices based on the x.86 microprocessor architecture. . . . The majority of the Company’s revenue comes from Core System Software (“CSS”), the evolution of BIOS (“Basic Input-Output System”), for PCs, servers and embedded devices, where Phoenix has established global market share leadership.”

Phoenix’s customers include a familiar roster of tech companies: Dell, HP, IBM, Lenovo, Samsung, Sony, Sharp, Motorola, and others. PC manufacturers typically install Phoenix’s software at the manufacturing stage.

In FY2005 the company just about broke even on almost $100 million of sales. After guiding FY2006 revenues down to $68 – 70 million and announcing a restructuring plan last week, the stock sold off. The recent departures of the CEO and CFO had PTEC investors in a bad mood even before the selloff. After an upgrade today by Matrix Research, shares closed up 18 cents to $4.06. The 52 week range is $3.85 - $8.79.

With a market cap of $103 million, PTEC is trading at about 1.17 times trailing 12 months sales. The kicker is that the balance sheet holds $99 million in current assets, almost all in the form of cash, investments, and accounts receivable. On the liabilities side there is $34 million in total liabilities, $30 million of which are current. With $76 million of cash and investments PTEC has time to fix itself and is priced quite cheaply on a price/sales basis once you net out the cash and investments (about 0.3x).

The key question is whether Phoenix is a compelling turnaround or a stinker? We’re going to pass on it since we don’t have the tech background to evaluate the software, but if you do, it might be worth a look.

PTEC 1-yr chart:

Comments

[Rob Zenilma...:]

While PTEC might have a strong balance sheet, my main concern is future revenue growth.

As you pointed out, they enjoy a strong market position in BIOS/CSS.

The question is what will be the impact to PTEC when Microsoft releases its Vista OS which supports the Extended Firmware Interface (EFI) (new technology which replaces the BIOS)?

www.microsoft.com/whdc...

2006 Jun 27 06:58 AM

[covop3:]

This is sheer speculation on rise and fall of a system that has been in place for years. This company is strong and will survive. It has plenty of time to diversify and will not be holding the bag. Don't let the doom sayers change your opinion on a strong company. Yeah vista is different, but the judgement on how effective vista is has not been carved in stone.

On Jun 27 06:58 AM Rob Zenilman, Se ekingAlpha.c om wrote:

> While PTEC might have a strong balance sheet, my main concern is
> future revenue growth.
>
> As you pointed out, they enjoy a strong market position in BIOS/CSS.
>
>
> The question is what will be the impact to PTEC when Microsoft releases
> its Vista OS which supports the Extended Firmware Interface (EFI)
> (new technology which replaces the BIOS)?
>
> www.microsoft.com/whdc...

2008 Sep 19 05:44 PM

[covop3:]

By the way PTEC has come out with the(EFI) firmware to support the duo core processor. This tech he speaks of is coming from PTEC. They also have a pattent on this. The notion that windows vista is coming out with the replacement tech to change this is not right. They can't due to the pattents involved here.

2008 Sep 19 06:00 PM

[covop3:]

Here is the link to the frimware developed by PTEC
www.investors.com/brea....

IBD is the source of my info.

2008 Sep 19 06:15 PM