Neoware's Bright Prospects (NWRE)

| About: Neoware, Inc. (NWRE)

Neoware Inc. (NASD:NWRE) designs enterprise thin client solutions and related software and services for a broad range of customers. Wikipedia defines "thin clients" as "a computer (client) in client-server architecture networks which has little or no application logic, so it has to depend primarily on the central server for processing activities". The Neoware products run any Windows, mainframe, midrange, UNIX, Linux, or Internet application on smart, solid-state appliances across a wired or wireless network. In an era when many applications run on the server-side instead of using the CPU of the customer device, the Neoware product line has a lot of appeal.

And the company's numbers show it. The company's fiscal 2003 (ending June 30) revenue was $57.5 million followed by $63.2 million in 2004 and $78.8 million in 2005. The company had an operating profit in each of these years with the 2005 number hitting $10.3 million. Revenue continued its climb in the new fiscal year with the September 30 quarter hitting $26.5 million and December at $29.3 million. Operating profit in this December quarter was $3.7 million.

Investors did not like what they saw in the fiscal third quarter ending March 31. Revenue was $27.8 million, up 46% from a year earlier but down a bit from the immediately previous quarter. Operating income was $3.1 million, a disappointment.

Wall Street revolted, sending the stock down almost 17% to $21.58. The 52-week high, reached a few weeks ago, is $30.95. The stock still trades at more than twice the low for the period which is $9.06.

Neoware has significant strategic marketing relationships with IBM (NYSE:IBM) and Lenovo. The good news is that these get Neoware access to a huge reservoir of customers. The caution is that revenue concentration with a few large customers is not always a good thing.

With $111 million in cash, and a business model that matches the trends in moving computing to servers and away from clients, it is hard to bet against Neoware. With a market cap of only $362 million, the best is yet to come.

NWRE 1-yr chart:

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

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