Will Phoenix Technologies Rise Again? (PTEC)

Jun.27.06 | About: Phoenix Technologies (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:

PTEC 1-yr chart