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Openwave Swells on Upgrade

Needham upgrades the software maker after strong earnings.

After an upbeat earnings report Thursday that earned



an upgrade Friday, the stock recovered some of the value it lost over the summer.

The communications software maker was recently up 37 cents, or 6.9%, to $5.72. Needham and Co. reportedly raised the telecom software developer to hold from underperform.

In a conference call Thursday, the Redwood City, Calif., company highlighted improvements made since the third quarter, beginning with the release of new products and some key contracts closed.

Fourth-quarter numbers back up claims that the company has chosen the right track, since it spurned activist investor Harbinger Capital Partner's buyout offer in June.

Backlog from unfulfilled orders, which stood at $69 million in March, totaled $268.9 million in the fourth quarter, up 3.2% year on year.

Deferred revenue, which was down 7% year on year, improved nearly 3% over the March quarter to $61.2 million, according to outgoing CFO Hal Covert, a former member of the board and its audit committee.

Gross margin, which had dropped from 70.5% in the fourth quarter of 2006 to a low of 55.6% in the March quarter, rose to 59.1% in the most recent quarter, he said.

In addition to customizing products for some 30 global telecom operators, Openwave is creating standardized, higher margin products that can also be sold through channels, CEO Robert Vrij said.



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accounted for 27% of the company's revenue during the quarter, Covert said. License revenue grew to $19 million, from $14.9 million in the prior quarter.

"The incremental change

in license revenue is primarily attributable to increased performance and execution, relating to customer specific milestones," said CEO Robert Vrij. License revenue from new products should offset declines from legacy products, he added.

The company is banking on a new mobile gateway product, delivered during the quarter. It enables telecom operators to deliver Internet browsing and streaming video to customers' mobile handsets.

Going forward, Openwave is "calibrating" operating expenses on quarterly revenue of $65 million, while its product development focus builds toward an 18% to 20% growth rate beginning in 2009, Vrij said.

The stock has slid from $10.37 on June 4 when hedge fund Harbinger, which owned 11.1% of Openwave,

attempted a buyout. Since the failure of that offer for $8.30 a share, Harbinger has disposed of its all of its Openwave shares, according to a July 26 filing with the

Securities and Exchange Commission