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Wave Systems Breaking Out or Down?

As it supports both trusted platform modules and self-encrypting hard drives, Wave Systems stands to benefit greatly. The trusted platform modules (TPM) Wave Systems supports refers to a hardware chip on a computer's motherboard used to store keys that are identities to log you onto different services, such as VPN or cloud computing. In the past, encryption was done by software added to a machine after production, but now security is being integrated from the get go.

"Think of it like the SIM module on your cell phone, which keeps your cell phone secure. The keys are actually in the hardware," Sprague says. "This is bringing that capability to the PC, where the keys cannot be stolen by software."

On the other side of the business, Wave Systems supports self-encrypting hard drives, which consumers and companies buy when ordering a new computer. Last year, Sprague estimates that nearly 65 million copies of the company's software shipped with Dell computers. However, most users don't realize the security is built into the system.

"It's taken much longer than anyone has expected, no question," Sprague says of consumers' awareness of the technology. "I would have never believed that we'd have gotten to 65 million copies of software shipped and we'd be just talking about engagement."

Much like it has struggled with consumer awareness, Wave Systems has had difficulty finding profitability, despite a jump in revenue. In the third quarter of 2009, Wave Systems saw revenue total $4.8 million, a 164% increase from the prior year. By comparison, Wave reported revenue of only $335,000 in the third quarter of 2005.

That surge in revenue has done little to sway investors concerned about the company's bottom line. There is also trepidation that Wave Systems has more than 70 million shares outstanding but is generating little cash. At the end of the third quarter, Wave Systems said it had total current assets of $5.2 million.

With no analyst coverage of the company, investors in Wave Systems have to rely on the company's quarterly reports and how the stock has traded historically. John Welsh, a daytrader who tweets his stock trades on Twitter as johnwelshphd, says that Wave Systems has potential and could report a profit when it posts fourth-quarter numbers on March 11.

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