Tuesday, August 15, 2006

Interesting Call of The Day - MoSys (MOSY)

Stanford Financial Group's Chris Chaney notes that given MOSYS (MOSY)'s recent pullback, they encourage investors to BUY MOSY shares ahead of what they believe will be significant customer announcements in 2H06.

MOSY shares are down approximately 22% since late July due to disappointing 2H06 guidance issued on its Q206 conference call held August 2. Compared to its recent high of $9.30 in early May, MOSY shares are down 38%, and today represent a 47% discount to $11 price target.

While the company's cautious guidance for 2H06 understandably shakes investors, the firm believes the sell-off is overdone. Although the timing of 2 license deals has been pushed back (not cancelled), and revenue recognition issues (not cash flow) have plagued 2H06, they note that the level of customer engagements has not softened. Firm believes the company continues to pursue a high level of customer activity which will result in Classic Macro and Technology licensing in 2H06.

Catalysts for 2H06. Chaney believes there are at least two events near-term and several more scheduled for Q406 which should regain investor interest, and renew investor confidence in the MOSY story. During Q306, the firm expects to see an announcement detailing the recent technology license which slipped into from Q2 to Q3 and at least one other IDM technology license deal announced before the end of Q3. In Q406, they expect to hear of at least 2 major 65nm foundry partnerships, at least 1 major IDM technology license, 1-2 1T-Flash deals and Classic Macro license announcements. And, they think Nintendo will announce the Wii in 2H October or early Nov. In addition, the firm believes the still un-named license contract that slipped into Q3 was likely worth over $2 mil in license fees, and will be for a major hand-held gaming platform which will go into production and earn royalties in 2H07. Thinks this deal could be as, if not more, significant than MOSY's current contract with Nintendo. Valuation looks attractive here. MOSY trades at a 20% discount to its peer group on both a pure P/E basis, and a 50% discount on a cash-adjusted P/E basis.

Notablecalls: I don't dare to call this one actionable but it's interesting enough to put MOSY on the radar. Ultimately it's a takeover candidate. Note that in 2004 a larger competitor attempted to buy MOSY for $14. The bid failed due to opposition of acquirers board.

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