StockPickers.Org - A Blogging Site From and For Serious Investors! » Openwave Systems Inc. (OPWV)

Openwave Systems Inc. (OPWV) – Bottom Fishing or Bottom Snaking?

Posted by: Dr. Ge on July 7, 2006 2:54 pm | In General thoughts, Internet Stocks, Today's Market | |

Bottom fishing in OPWV has unfortunately become bottom snaking – instead of catching a good looking bass, I caught an ugly snake, and got bitten badly.

I sold all my interests in OPWV in 2005 for a decent profit because I didn’t see the growth story that people were expecting. From a business point of view, Openwave could be among one of the biggest failures in terms of its billions of dollars accumulated losses. It’s a dot com story that has never fully recovered. The hyped growth never becomes a reality. And also, I didn’t like its CEO David Peterschmidt at all. He sold Inktomi to Yahoo at exactly the lowest point of the business cycle while Google and other search engines were making a powerful comeback.

I didn’t like Openwave’s acquisition of Musicwave because it signaled that the organic growth of its core business in the wireless software arena was slowing and a diversification into the content business didn’t make any sound business sense. In the mean time, Openwave issued a secondary offering of its stocks and further diluted its EPS. My guess was that the company was trying to buy the growth using the cash it just raised.

However, I started to accumulate OPWV when the stock dropped from $20s to $11s. I thought it’s an overreaction of the stock market to its option backdating problem and the possibility of losing a system deal. So I bought it expecting that it may bounce back quickly to $15 level as the general market condition improves. $11 a share was a bargain in my opinion given its attractive position in the wireless software market. I thought the revenue miss would be in the several million dollars range, but not as the shocking $30 million as the company reported yesterday.

The management didn’t give any reasonable explanation to such a dramatic drop in revenue this quarter as well its reduced outlook of fiscal year 2007 in yesterday’s conference call. They blamed that the large system deal – the business that Openwave has been pursuing for the last several years, caused the lumpiness of its revenue recognition. However, the lumpiness in system deal may affect one or two quarters, but shouldn’t cause the slowdown of its whole fiscal year of 2007, except there are many more problems within the company that the management was reluctant to discuss.

But I think $7s a share is a good bargain. The company has plenty of cash and a relative strong position in the wireless data application software arena. If it cannot recover on it own, someone will grab it. Therefore, I will continue to hold my shares and may add more as the dust settles.

Generally, I bottom-fish at the moment when the longs of the stock feel so desperate that the only thing in their mind is to sell, get out and be done with it. Meanwhile, when the insiders start to buy, it’s usually an extra plus. Unfortunately I was not so patient on OPWV this time. I bought the stock at $11s partly because I had seen the up and down of this stock so many times – almost every time I made money when I bought at low – but this time the bottom is much deeper (30% more) than I thought.

The development of INTC/AMD story is almost exactly the same as I predicted in my Febrary post. Price war is a blunt weapon – it hurts both but it hurts AMD more. I am waiting for the days when the price of the two stocks cross – unfortunately for those faithful AMD longs, the day comes much sooner than they had ever expected.

The stock market drives everyone crazy these days except for the short term traders who long the volatility. Hang in there if you still believe the story. Otherwise take a rest and enjoy a good summer!

9 Comments »

RSS feed for comments on this post. TrackBack URI

Thanks for update on SGTL. Congratulations on the Intel prediction and I remember that long discussion on your old blog. The AMD is significantly down from $42 level when you talked about shorting it and long on Intel.
What is happening to WBSN ? It is going down. I was thinking the little revenue miss should be priced in however it doesn’t stop going down.

Comment by bechdoo — July 7, 2006 #
Hi All,

I like your analysis on OPWV, but I am little confused. You said you don’t like CEO and their strategy, but you will add more position. I also don’t like their miss without really explanation. However, the decline of EPS and no growth on revenue make me worry. I admitted that I did short yesterday before market open at $8.65 of 2000 shares and covered at close with 4k profit. Well, I am afraid that they will announce missing in the future.
What do you think about MFLX? Yesterday it dropped $5 because of the missing announcement from possible merger. It also dropped from their peak about $60 in April to $27 now.

Comment by earningplay — July 7, 2006 #
Hey Doc G,

Remember my questions re: FLIR. It is nice when your thinking is confirmed. I am long Flir 2009 LEAPS mostly bought in early July. I look forward to a new all time high based on the current rollout of newer better products, 500% increased plant capacity and reducing prices as economies of scale kick in. FLIR systems will be installed on every border, in every port, at every chemical plant, airport, oil refinery, on every ship at sea, bridges, tunnels, railroads, prisons, and throughout the entire military, plus many other sites. FLIR has cash and a reasonable PE.IMHO FLIR can be bought on pullbacks near $25. Hope this post is helpful. Joe

Comment by joe — July 11, 2006 #
Joe,

Congratulations to you! I looked at FLIR but was pulled away to other stuff…bad for me . I’ll look at it in detail this time. Thanks!

Dr. Ge

Comment by Dr. Ge — July 11, 2006 #
Can someone give me detail information how to sell short or buy short. i don’t know about stock market that much but i would love to learn. thank you

Comment by Nick — July 27, 2006 #
Hi DR GE,

Have not seen your post for a while? I hope you are still hang in there. Do you think RACK is a good buy after dropping 40% today? It is $21.23 closing today. They have $7.5/sh in cash w/o debt and forecast to earn $1 for this fiscal year 2006. If the current price minus the cash, it is $13.73 and P/E 13.73. With almost 30X growth for next year, is it a good buy? I don’t usually catch a falling knife, but this is an oversold situation I think.

Comment by earningplay — July 28, 2006 #
Dr GE,
What are you thoughts on COGT after their earning call yesterday ? Can they be trusted or it is best to cut down losses and move on ..

Thxs,

Comment by bechdoo — August 3, 2006 #
Deep wounds by trying to catch falling knives like COGT, SGTL, CYBX which were picked by Dr.Ge at $15, $8 and $30 respectively. Is it a good time to enter these stocks? we are in the middle(?) of a bear market… but say something dr. ge… looking forward to seeing yr comments…

Comment by jt — August 7, 2006 #
I just found your blog. I feel much better after reading this entry. I bought 200 shares of HANS on Wednesday for $28.90/share. A day later it dropped to $27.50/share, which was the original price I wanted to buy, but I figured it would never drop that far. It then further dropped to $27.02. I thought I made this mistake because I am inexperienced. It really helps to know that experts like you do make mistakes sometimes.

Comment by Johnny — September 1, 2006 #

Donate:

Join Us:

Contributors:

diarmundo01 (1)
Dr. Ge (55)
Jane (4)
RMA (9)

RSS Feeds:

Disclaimer:

Under no circumstances does the information in this blog represent a recommendation to buy or sell stocks or options. Information in this blog may not be accurate and it only expresses contributor's own opinion. Contributor to this site may have long or short positions in the stocks/options that he/she discusses in the blog.