Several quarters ago, iGo (OTCQB:IGOI) and Targus parted ways on a partnership in which iGo manufactured laptop chargers and Targus sold them into its retail channel. From iGo's perspective, Targus was getting a disproportionate amount of the profits in the deal, eventually leading to the split.
Targus enlisted Comarco (OTC:CMRO) to pick up the slack and thus a rivalry was born. Targus began selling Comarco chargers and iGo began trying to cut out the middleman by winning the favor of retailers on its own.
Apparently, the battle has been going iGo's way. Shares of CMRO have been in a tailspin, as IGOI shares continue its steep and steady ascent. Adding fuel to the flame, last night Comarco announced that revenue for the third quarter fell to $5.5 million from $7.6 million in the third quarter of fiscal 2010. This comes after posting $12.8 million in revenue last quarter.
Reading a few key phrases from the press release, it's clear that Comarco's nosedive originates from its retail presence (which is the crux of its relationship with Targus):
"The decrease in revenue in the recent third quarter was attributable to the previously announced softness in retail consumer demand."
"Our third quarter sales reflect disappointing consumer demand for our products in the retail markets that Targus serves...In contrast, our OEM business doubled over the comparable prior year period, reflecting improving corporate demand for notebook computers. We have been encouraged by the demand forecasts for our products by our OEM customers and expect continued strong OEM revenue growth in the fourth fiscal quarter."
"We anticipate that retail sales will remain soft during the fourth quarter of fiscal 2011...We are working with Targus to implement changes that we believe will help generate improved consumer demand. Targus is repackaging the product so that it better communicates its value proposition as a unique product that not only charges notebooks but most other mobile products as well. In addition, we anticipate a pricing adjustment at retail that should help drive additional sales of the product and still leave an attractive margin for Targus and for Comarco."
The translation here is easy. iGo has been offering a superior product at a superior price. As a result, despite healthy notebook demand (as evidenced by Comarco's strong OEM performance), the Comarco/Targus team is getting killed in the retail channel by iGo's offerings.
Comarco/Targus will respond with a price decrease and a rebranding effort, but this is likely to be a case of too little, too late. The price change will only create parity in that regard. That won't be enough to inspire consumers to purchase a product that experienced an overheating-related recall earlier in the year over a product that is gaining a reputation for superior performance and being Green-friendly.
Those troubles will only compound late next year, as iGo unveils a silicon-based solution with Texas Instruments that will further lower its cost-to-manufacture, while incorporating patented technology to reduce customers' electricity costs. This combined with the fact that Comarco and Targus need to make enough money to split between them gives investors three more reasons why iGo will continue to build momentum in the market.
And given the momentum evidenced by iGo's activity in the press, online social mediums, and its large retail accounts (most notably Wal-Mart), investors can likely expect a nice holiday gift when iGo reports its Q4 results next month.
Disclosure: I am long IGOI.