Smith Micro’s share price has powered ahead since I last caught up with this acquisitive wireless software company back in May. Q2 earnings are due out between 3 and 13 August. [Update: Earnings out Monday, August 3, 2009, 1:30 pm PT / 4:30 pm ET] Analysts estimates have remained relatively stable over the last 90 days, with a cent here and there movement. Consensus earnings are 0.14 for this quarter, 0.20 for next, 0.70 and 0.81 for 2009 and 2010 respectively.

SMSI closed at $11.36 last Friday, a triple off the March low of $3.64.
The Forward P/E (fye 31-Dec-10) of 13.90 and PEG Ratio (5 yr expected) of 0.74 are SMSI’s best stats, though the $40M in cash and no debts also looks good.

The main story continues to the massive growing tornado that SMSI stands in front of. The explosion of wireless devices, 3.5 and 4G,  and wireless data subscribers represents a massive opportunity for SMSI. They have a significant lead, but will need to fight to protect their turf, from well heeled competitors.

Wireless subscribers are predicted to grow from 41M in 2008 to 757M in 2013, that’s 86% CAGR. The growth in bandwidth is just as stagerring and will grow by 200 fold, with 2.5G delivering a pedestrian 25Kbps compared to 4G’s blistering 5000Kbps.

Whatever happens this quarter is largely irrelevant in the big picture, though it would be good to see a continued focus on operational performance, with improved margins.

Latest presentation

Guiding for $110-115M in revenue for 2009. That 12-17% growth over 2008’s $98.4M is not to shabby in the current economic malaise. Analysts are predicting $111.6M in 2009 and $128M in 2010 revenues.

Bill Smith, SMSI’s CEO, same presentation a day later at UBS, June 10. Notes from his presentation.

• Secular growth play on connectivity. Built strong numbers over last five years. Strong franchise. Particularly strong in North America, but growing strongly off shore with 10% of revenue now from offshore. Still very early in the adoption stage. Profit from huge growth in wireless modems and 4G via WiMax and then LTE.
• Organised into three groups
  • Connectivity and security – QuickLink. Strong growth engine. Dominate space word wide.
  • Multimedia and convergence -
  • Productivity and Graphics – Stuffit, Poser, Anime Studio
• Leader or top player in all market segments they service.
• Own IP, 16 patents with a new one every seven months. [see below for the latest]
• Growing global customer base.
• Gross margins continuing to improve.
• Strong free cash flow.
• Wireless software roll-up that keeps getting stronger.
• Revenue is royalties model on software sales. Recurring due to upgrade cycle.

Smith sounded down beat about this quarters prospects, though maybe he’s simply left his enthusiastic salesman persona behind in his booyah days.

Following are some comments an acquaintance sent me via email back in March. Tom knew SMSI better than I ever did and I appreciated reading his views on SMSI and ‘growth tech’ investing.

“The connectivity business is booming and is definitely a hot area, but if MSFT and AAPL start including connectivity in their operating systems, then the business would take a giant hit overnight. There are many arguments against the likelihood of this happening, but it is a concern I have. And if this were on the horizon, Bill Smith would be the last person to let his shareholders know about this threat.

Another concern I have came to me as I listened to Bill Smith rail against share buybacks as a “fix” for investors at the annual meeting  — the most animated he became during the whole meeting. ( It is obvious that Bill Smith would never even consider the concept of a share buyback.) I understand that a growth company doesn’t pay dividends and I can understand that a company may view using money for growth as a better use of cash than share buybacks. But it did make me  reflect on a broader topic. In the competitive tech area, Bill might be right in the view that the company must constantly plow profits back into the business to keep a competitive edge. In that case though, the “profit” is really illusionary. It is really just future growth cap-ex. If that is really the case, it is not a great business to own.”

Recent Patent on a Seamless Cloud

Here is SMSI’s recent patent. Great sounding stuff, one day this will be ubiquitous and SMSI continues to expand their lead.

A method for the seamless switching of a wireless device between wireless wide area networks (WWANs) and wireless local area networks (WLANs) includes automatically detecting the available WWANs and WLANs, selecting one of the available networks for use by the wireless device, and connecting the wireless device to the selected network. The method also includes maintaining the network connection by monitoring the connection and, upon determining that the connection has been lost, selecting a another available network for use and connecting the wireless device the other network. Additionally, the method communicates information about the availability networks and connection status to a user of the wireless device, which allows the user to manually switch the wireless device connection from the automatically selected available network to another available network. Further, a wireless device implements the above described method.

More on SMSI

Disclosure: I hold SMSI in one or more accounts.

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