Nonetheless, OSI has been unable to sustain a rally, or garner credit for the value its assets offer. Of course, posting losses doesn't help my (primarily value-oriented) investment thesis. And that's just what the firm did in its most recent quarter. The red ink was expected, however, and although there was a lot of noise in the company's fiscal fourth quarter, not all of it was bad.

Starting with the bad news: OSI lost 25 cents per share in its fourth quarter. Legal and Sarbanes-Oxley costs exacerbated the loss, but the fact is that for all its promise, OSI's security segment remains a money pit. OSI's conventional screening products may be selling just fine, but the company's R&D bet on developing large-cargo screening solutions for airports and border crossings just hasn't panned out so far.

That's also likely to be the case for the near future. Despite announcing an order for $16 million worth of its Eagle large-cargo inspection systems on the same day its fourth quarter was released, management relayed its expectation that the security group would continue to be a drain on profits for several quarters to come, although a return to overall profitability is expected in the December quarter.

In this post Sept. 11 age, it may seem odd that a firm boasting cutting-edge technology for screening people, luggage and large cargo would have problems turning a profit. But all that profit was made in the frenzy of buying that followed the 2001 tragedy. Today, the company's prospective buyers are understandably assessing the next generation of equipment to make sure they're spending wisely. If new technology is only marginally better, customers aren't about to rip their existing, costly equipment out to make room for the new machines. The next product they buy has to be head-and-shoulders above the existing technology.

Tighter Spending Patterns