Tuesday, September 05, 2006

Calls of Note Part 5

- Piper Jaffray is positive on Smith Micro Software (NASDAQ:SMSI) saying that based on their monthly handset channel checks, they believe Verizon accelerated sales of music enabled handsets and Music Essentials Kits (MEKs) due to the recent launch of LG's Chocolate phone and promotion of the CDM 8945 music enabled handset from UTStarcom for only $30 with a free Music Essentials Kit.

Further, with the back-to-school season, it was clear Verizon store managers were strongly promoting its V CAST music service and enjoying strong sales of music-enabled handsets such as the LG Chocolate phone and the LG VX 8300.

Each phone Verizon offers for its V CAST music service requires its own unique Smith Micro MEKs, and Smith Micro recognizes revenue on sales of the kits into the market. While selling MEKs into the channel to support phone launches could potentially create a future inventory correction, they believe the Verizon service is in the early stages of strong growth and do not foresee any near-term inventory issues given expectations of ramping music phone models and sales for the remainder of 2006.

In fact, with firm's August checks indicating strong sell-through trends for music enabled handsets, they believe Smith Micro September quarter estimates may prove conservative. Maintains Outperform and $18 tgt.

Notablecalls: I highlighted SMSI 3 weeks back in connection with ThinkEquity's comments saying it could eventually be a $200 stock. The shares have rallied 40% since then. I think that while Piper is a bit late with their call, SMSI may be starting to attract some serious inst. interest. Look for a pullback before buying.

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