Raymond James looks at Intrinsyc Software's Q2

The path to taking over a technology vertical is a winding one, but Wellington Financial Fund II portfolio co. Intrinsyc Software (ICS:TSX) got a step closer yesterday by meeting market expectations for their Q2 revenue. Here is the summary note from the equity research team at Raymond James:

“Action

We reiterate our OUTPERFORM rating and $0.65 target.

Analysis

We now expect Soleus royalty revenues to start ramping in 2H08. While management alluded to some lengthening of platform evaluation timeframes due to the current macroeconomic environment, solutions such as Soleus which offer Location Based Services and advanced UI still offer value to customers. As a result, design wins are progressing more or less as planned. A
device from Quanta is scheduled for launch in F4Q08. Mitac launched its first Soleus based device, the Mio Moov 380 (a connected PND device) in Taiwan and a launch in Europe is scheduled for the Fall. Samsung LSI reference kit shipments are expected in 2H08 with subsequent shipments to Samsung OEM customers. Intrinsyc also completed the Soleus platform for the second silicon vendor for a GPS phone solution targeted for release in China.

For the MSI device, shipments have been delayed due to a business level decision. We still
believe that there could be as many as four customers generating Soleus royalties by the end of 2008. The Destinator integration is proceeding well.

Intrinsyc has re?negotiated contracts with 20 Destinator customers since the transaction. After the end of F2Q08 Motorola launched the MING A1600 handset for the consumer market in China leveraging Destinator’s navigation sofware solution. We estimate Intrinsyc has ~$21 mln in cash post the Destinator transaction and is burning cash between $5?$6 mln per quarter.

Valuation

Intrinsyc currently trades at 0.7x C2009E revenues while comparable mobile software companies trade at 2.6x C2009E revenues.”

MRM
(disclosure – our Fund II holds warrants in ICS)