IMMR

[kslifka]

We should get some share buyback news soon.  According to the conference call, they were in a quiet period until March 4th, so they couldn't buy any shares.

[buddjas1]

Any guidance on the CC?  I have never been confortable when management does not provide guidance. 

[Se7en]

Any guidance on the CC?  I have never been confortable when management does not provide guidance. 

No guidance

[buddjas1]

I just noticed that IMMR has no operating profit.  The "net" profit is a product of interest income.  4Q07 op income was (1,506) on 4,019 revenue.  4Q06 op income was (1,605) on 2,356 revenue.   (4,019-2,356=1663)/ (1,605-1,506=99)= $16.79 revenue to get $1 increase in op income. Breaking into positive op income, then, would require 1506*16.79 = $25,297,000 in revenue per quarter, without accounting for some fixed costs.  Whatever the fixed costs are, though, it is clear that IMMR is far from profitability.

Unless someone can show me where I am wrong, IMMR does not look like a stock we should be into.

[BigSully1]

I just noticed that IMMR has no operating profit.  The "net" profit is a product of interest income.  4Q07 op income was (1,506) on 4,019 revenue.  4Q06 op income was (1,605) on 2,356 revenue.   (4,019-2,356=1663)/ (1,605-1,506=99)= $16.79 revenue to get $1 increase in op income. Breaking into positive op income, then, would require 1506*16.79 = $25,297,000 in revenue per quarter, without accounting for some fixed costs.  Whatever the fixed costs are, though, it is clear that IMMR is far from profitability.

Unless someone can show me where I am wrong, IMMR does not look like a stock we should be into.

I haven't had any interest in this stock until now and have never had any shares or even taken a hard look at it, so my comments will probably not be welcome. I'm only trying to be helpful, but go ahead and smite me some more, I'm used to it.

You are correct buddjas. They had a 1.5M operating loss in the 4Q and that was clarified in the Q&A session of the CC. By the way, either that was the longest, most boring CC I have ever heard, I have been listening to too many of them, or I just plain don't have any real interest in this company to really listen.

There were a few points I picked up on. They absolutely will not give any guidance. After refusing to several, one caller simply asked; that given the fact that the first two months of the current Q had now passed, if they felt they were ahead of where they were at, in the same Q of 2006. They declined that simple question.

Another caller wanting just a little visiblity was entirely unsuccessful, and then when he asked about why insiders would not hold shares or buy shares, he was abruptly cut off.

Another caller eventually asked the same question, and the speaker, whoever he was, said he already had considerable tied up in options and more or less that that was enough. The caller ended up irate.

As I said, I know very little about this company, so I have a question. Was the Microsoft lawsuit against them previously disclosed? Microsoft initiated a lawsuit against them in mid 2007, alledging breach of contract and claiming they are entitled to a share of the judgement from Sony. How much was the judgement and what percentage of it is Microsoft claiming they are entitled?

My feeling is that the stock is still very speculative, and one would kind of have to rely on faith as to it's potential. I think that even if the company is eventually very successful, there will still be plenty of time and opportunities to buy it, probably lower.

If I were interested in it, it would be the kind of stock I would only have a fraction of  1 percent of  my holdings and tuck it away and don't look at it again for a while..

[David Randolph]

IMMR's 4th quarter results:

• Immersion Corporation Reports Fourth Quarter 2007 Financial Results
Business Wire (Thu 4:35pm)

They were weak (even though 2 pennies above expectations), especially because Product Sales declined 23.4% from Q4 2006. Royalty and license revenue grew 70.6% and total revenue growth was just 15%.

I guess this revenue breakdown shows the trends within IMMR, with Royalty and license revenue now accounting for 40.6% of total revenue. I expect this part of the business to keep growing exponentially (especially when Nokia ramps up its mobile phones using the VibeTonz technology) and the Product sales to grow somewhat just due to geographical expansion.

There was an operating loss of ($1.5 M) and the positive net income of $511 K just happened because of $1.8 M in interest income on the company's $138 M cash balance. 

As BigSully1 says, the conference call didn't went well, with at least two shareholders showing discontent with the lack of guidance, the low share price and low insider ownership.

I'm not particularly worried with these issues but I guess the stock will sell off today, also due to the general market jitters. But any sell off will be contained by three factors:

1 - The company's buyback program still didn't start and management said it will start in March 4th, 2008. This is a very significant $50 M buyback program, which will probably absorb most of the selling activity. Moreover, any relevant seller would want to wait for the company's demand before showing his supply;

2 - The balance sheet is too strong, with $138 M in cash and equivalents;

3 - IMMR's big upswing in revenue and profitability will probably just start in the second half of 2008, when Nokia, which has a 40% plus market share of the global mobile phones market, starts selling its models with the Vibetonz technology. I think there will be an IMMR before and after Nokia.

As I said, I know very little about this company, so I have a question. Was the Microsoft lawsuit against them previously disclosed? Microsoft initiated a lawsuit against them in mid 2007, alledging breach of contract and claiming they are entitled to a share of the judgement from Sony. How much was the judgement and what percentage of it is Microsoft claiming they are entitled?

Yes, sure, it's on their 10-Q files:

«Under these agreements, in the event that the Company elects to settle the action in the United States District Court for the Northern District of California entitled Immersion Corporation v. Sony Computer Entertainment of America, Inc., Sony Computer Entertainment Inc. and Microsoft Corporation, Case No. C02-00710 CW (WDB), as such action pertains to Sony Computer Entertainment, the Company would be obligated to pay Microsoft a minimum of $15.0 million for amounts up to $100.0 million received from Sony Computer Entertainment on account of the Company's granting certain rights, plus 25% of amounts over $100.0 million up to $150.0 million, and 17.5% of amounts over $150.0 million. As of December 31, 2006, the Company reflected a liability of $15.0 million in its financial statements, being the minimum amount the Company would be obliged to pay to Microsoft upon a settlement with Sony Computer Entertainment.»

I would say that if IMMR loses its case against Microsoft, it will have to pay a maximum of $15 M, plus $12.5 M plus $3 M or so, for a total of $30.5 M. IMMR's cash balance would decline to about $110 M if that were to happen, not very significant.

Management said something in the conference call that caught my ear, because I'm afraid that there's something wrong in my analysis, particularly in that "$1, or 1%, per mobile phone sold" assumption. They said that they talked a lot, in the past, about their "revenue model" for Samsung, LG and to a lesser extent about Nokia. Well, this must have been in 2005 or early 2006, because I didn't read or heard anything about this crucial issue in 2007. I'm going to have to go back and study what they said back then.

But making some fairly simple assumptions, they said 5.5 million phones in 2007 and Royalty and license revenues in 2007 were  $11.881 M. If we assume half of this revenue came from mobile phones, that means $1.08 per phone, so it is consistent with my expectations.

In my view IMMR's long term investment story comes down to this: 300 million phones*$1 = $300 M in revenue perhaps in 2010. This should mean $150 M in net income ... probably I'm too high here, say $100 M. This should put IMMR in the $1.5 B market cap, considering the average p/e multiple of the S&P 500 and not considering all other possibilities for the company. This would mean a 400% return on investment over the next three years (I'm being less optimistic than I was, but still a very encouraging projection). 

So far I still see the 300 million phones and the $1 per phone so I'll keep holding IMMR for the long term.

But I'll have to dig some more into the past to get some more clues about the future.

[buddjas1]

"In my view IMMR's long term investment story comes down to this: 300 million phones*$1 = $300 M in revenue perhaps in 2010. This should mean $150 M in net income ... probably I'm too high here, say $100 M."

This is where you lose me.  How can IMMR suddenly have a 33% net profit margin (100/300) a couple of years from now, when IMMR currently has a negative operating margin? 

[David Randolph]

"In my view IMMR's long term investment story comes down to this: 300 million phones*$1 = $300 M in revenue perhaps in 2010. This should mean $150 M in net income ... probably I'm too high here, say $100 M."

This is where you lose me.  How can IMMR suddenly have a 33% net profit margin (100/300) a couple of years from now, when IMMR currently has a negative operating margin? 

Good question with an easy answer buddjas1. It has to do with the structure of IMMR's revenue. You see, in the 4th quarter the medical equipment business represented 43% of revenue while Royalty and license represented 40.6%. Medical declined 23% while Royalties and licenses grew 70%.

Obviously making and selling medical equipment is a much lower margin business. The Royalty and license division is a very high margin business, because IMMR already developed the technology and it is at the licensees expense that the technology is embedded in each mobile phone.

So, as the royalty and license division grows into a $300 M a year revenue business, I expect the medical equipment segment to represent no more than 10% of IMMR's revenue over the long term. And with 80%-90% gross margin in the royalty and license business, yes, I do believe 33% net profit margin is quite possible.

What do you think of this? Thanks

[buddjas1]

What do you think of this? Thanks

Sounds possible; I'll hold for now, but I think IMMR is a project stock (very long term hold until the gain).  Reminds me of PTSC; same business model.

Thanks for answering my question. 

[Amarens]

  13% down.

Would have been nice to go into the weekend differently. Guess I'll just go out for dinner 

Have a good one.
Amarens

[pinoleropuro]

I am glad I got out at $10.07 for a quick little profit.
yikes!

[David Randolph]

Friday was a bad day for almost all stocks, but it was horrendous for IMMR, showing a 17.7% decline, after reporting 4th quarter results.

I spent part of the weekend worried about this outcome and listening to past conference calls (the ones still archived on the company's website), read all press releases since 2005 and studied the latest 10-K and 10-Q forms filed with the SEC.

Listening to the boring and controversial 4th quarter conference call again, I find the part where the CFO makes the revenue breakdown for the quarter and the year quite revealing of what's happening inside IMMR and why the weaker than expected quarter:



I've highlighted the Medical and Mobility business segments. You can see the medical segment is still the largest within IMMR (although progressively losing importance), with 44% of the 2007 revenue and 34% of the 4th quarter revenue. This segment and its 21% decline in revenue had a material negative impact in IMMR's 4th quarter results.

On the other hand, mobility is growing very fast (500% in 2007 vs 2006), but it still accounted for just 7% of IMMR's total revenues for the year. In Q4 2007, mobility grew 225% and accounted for 10% of IMMR's revenues for the quarter.

Also looking at the company's other business segments, namely the "console & PC gaming", the "touch interface products" and the "3D Products", they're all growing nicely.

Medical, which is still the largest segment, is doing poorly, the ones in the middle are doing well and the star performer, as expected, is the mobility business, growing very fast but still accounting for a small percentage of revenues.

I believe that as these trends continue, IMMR's profitability will change dramatically. IMMR said there were 5.5 million VibeTonz enabled mobile phones shipped in 2007. It also said it expected at least 50 million to be shipped in 2009 and hundreds of millions starting in 2010.

This growth will make mobility the largest business operation for IMMR and I suspect this segment has a much higher profit margin than others, because here IMMR just collects license fees and royalties for a technology that it already developed.

I looked everywhere and I'm certain that management never disclosed the financial details of its licensing agreements with Samsung, LG and Nokia. I also can't use the available information to make calculus and get to a conclusion, because, get this:

I found in an old SEC filing that there were 4 million mobile phones with the VibeTonz shipped in 2006. The "mobility" revenue in that year was $400 K, so one could conclude "10 cents per phone", right?

However, recently the company said there were 5.5 million VibeTonz mobile phones shipped in 2007, and the "mobility" revenue in that year was $2.4 M, so here we get 44 cents per phone.

I don't know if these differences have to do with the company's revenue recognition policies or with the "revenue model" they establish with each licensee. It appears that this "revenue model" management talks about is complex and we can't reduce it to "X cents or dollars per phone".

I'll have to keep investigating, but so far everything seems going as I expected, and this latest quarter weakness had to do with a business segment that doesn't matter much to me and the business that matters is still small but growing very fast just as expected.

When the $50 M stock buyback program is allowed to start (which is tomorrow) and Nokia starts shipping its phones with the VibeTonz I expect IMMR to move up.

I'll continue holding IMMR for the long term.

[David Randolph]

I figure that recession or not, bear market or not, in the near future most electronic devices will need to have touch feedback technology incorporated into them. Nokia will still sell 400 million plus mobile phones a year even if the World goes into recession. Or at least 300 million.

I continue to see IMMR as a multi-billion dollar business in a couple of years time and I'm prepared to hold this one throughout the bad times.

The company's $50 M buyback program probably will put a floor under the stock price.

[David Randolph]

The company's $50 M buyback program probably will put a floor under the stock price.

I don't know if it was due to the $7.56 support level, the oversold condition or IMMR's stock buyback plan, but IMMR rose a bit on Friday, while the general market and especially the Main Portfolio experienced an awful day.

I've been holding IMMR since July 2007 and even increased my exposure when at a significant loss. This tells you something about my commitment to this stock.

Whatever happens I'm prepared to own IMMR at least until late 2010. At this time probably everyone will see most financial effects of today's technology and licensing contracts.

[David Randolph]

IMMR broke down below the $7.56 support, closing at $7.18.

It appears that the company still didn't start to buyback its shares, or its buying power isn't enough to absorb the shares being offered.

Investors are not bidding for low p/e stocks, let alone high p/e stocks like IMMR.

Anyway, I remain a believer that IMMR will be a $100 stock in 3 to 5 years time. But the short term promises to be very, very tough.

I should have paid more attention to the technical trend and timing ... a lesson for the future.

I'll keep holding IMMR for the long term.