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LTRX March Quarter Review

|Includes:Lantronix, Inc. (LTRX)

Thursday evening, Lantronix (NASDAQ:LTRX) reported results for its third fiscal quarter ended March 31, 2013. Revenue came in at $12.2 million, flat versus last quarter as well as the year-ago quarter. The company battled through macroeconomic conditions in Europe, as well as delays in product rollouts and OEM production.

The xPrintServer Home Edition saw a seasonal slowdown, while the Office Edition ramped up. Net-net, we estimate that the xPrintServer family experienced a slight decline versus the holiday quarter (Dec) which experienced close to 100% sequential growth.

The quarter had an equal number of positives to offer. As we previewed last quarter, the third quarter saw the launch of a new xSenso product (xSenso Controller) and a wifi version of their xPico offering.

Also, the autumn signing of Ingram (Europe) is still proceeding well and starting to generate orders. As LTRX signs Ingram's VARs over the next couple of quarters, revenue should ramp up. This is in-line with the time line we originally envisioned. The relationship is designed to take LTRX's presence in Europe (in embedded products) and extend that to its external and device management offerings. Looking at its complete presence in the U.S., we can estimate that this relationship has the potential to drive EMEA revenues from $3.6M at present to $7M in the future.

Similarly, its relatively new relationship with Arrow in Asia has the potential to turn APAC into LTRX's largest geography, adding $5M in revenue per quarter. However, investors will have to be patient, as this particular relationship will require 6-8 quarters to ramp up.

Here are our updated revenue contribution charts:

Current Revenue Contributors (Sept/Dec 2012)

Product

% of Revs (Dec)

% of Revs (Mar)

Characteristics

Device Enablement (Embedded)

46%

52%

Semiconductor-like business; 12-24 month ramp time, but huge revenues with 6+ year life cycles.* Showed 14% growth over the December quarter.

Device Enablement (External)

29%

23%

Requires 12-18 months to ramp; 5+ year life cycles.

Device Management (SLC)

13%

12%

Still a lumpy business, but LTRX sales & marketing is still pushing for sales in international markets.

Other Device Mgt (xPrintServer / SpiderDuo)

13%

13%

xPrintServer Home slowed, offset by the ramp of xPS Office; SpiderDuo held up, bu requires data center build-outs to ramp up.

* LTRX's most successful product ever took 12-18 months to ramp.

Future Revenue Producers (Dec 2012)

Product / Category

Time Needed to Ramp Revenue

Characteristics

xPrint Server

Immediate

The xPrint family is a solid contributor to company revenue.

New xPrint Server products coming in FY13?

Immediate

Market Opportunity = $100M+

SpiderDuo

Released 2+ years ago. Starting to ramp

Should become a solid contributor, but expect lumpiness.

PremierWave EN

Has been building traction for over 12 months.

Great potential, like its other embedded products. Will exhibit a long life cycle; LTRX's Asian win from a few quarters ago is ramping up.

xSenso

Announced on July 31, 2012; Still needs 9-12 more months to ramp

Connects sensors (i.e., temperature sensors) to networks; Part of a $1.5B opportunity/Needs to expand sales channels; LTRX is not a name brand in that area, so it will take several Qs to ramp up.

Device Enablement (xPico); Started sampling in Feb '12

Have been building traction for 9-mos. Needs several more quarters to ramp; Wifi edition should be bigger and ramp faster than the wired version.

An equivalent current product = ~30% of revs. The new version will only create a small amount of cannibalism. They have design wins, but mostly prototype stage; needs 6-12 months to ramp.

Future External Device Enablement products

Will require 6-9 months to ramp

Same as above, but with slightly shorter life cycles

Source: Pipeline Data, LLC

Disclosure: I am long LTRX.

Stocks: LTRX