Tuesday, August 19, 2008

Share buyback campaign

My fellow shareholders,

It has been a major disappointment to see the stock drop down to the low $3 level after reaching almost $6 this year. The company's management let shareholders down with this year's shortfall and cash flow metrics after repeatedely touting their turnaround plan in previous earnings calls, analyst day meetings, shareholders meetings, and webinars. It can be argued that some of the events were not in management's control. However, with the company's history over the last few years, these "good excuses/negative results" have become all too common and drive down investor confidence, whatever is left. Management has discussed (a lot) about getting to profitability and there are signs of operational improvements. It has improved the balance sheet and for the most part, I believe the company is in a much better situation this year compared to last year. However, the fact remains, there is a significant difference in the street's interpretation of the company's performance and outlook to what management is portraying. This is not due to a lack of effort from management's part either (with the numerous events/communications/projections). However, this latest set-back has eroded hard earned credibility built up over the last year. Let me repeat. It has eroded hard earned credibility built up over the last year. It will be hard for the company to gain back credibility unless it starts producing good operational results or doing something tangible (much more than just talk and projections).

Since last year, the shareholder group has discussed a share buyback with the management and with lead director Thomas Toy. It seems that everyone was in agreement that the shareprice is undervalued but there were always issues that prevented a share buyback such as resolving the convertible bond, reorganization, building up revenue, and other items. The Chief Financial Officier, Fran Barton, has mentioned that they cannot do a buyback unless they have "excess" cash. After the recent sale of the PCD, the company has amassed a net cash position of over $400m. Even after subtracting the cash flow losses for the remainder of the year, the company will still have over $300m in net cash. The company has also indicated that it may sell or merge the remaining none-core business, the CSBU, that can also generate cash or additional cost savings. With Barton's "conservatism" when getting bad news out, I think that cash is going to be even more by the end of the year. Revenue growth in the high double digits and bookings of 25-50% are predicted for 2009. This is also a company that has very little debt, has interest income, and owns their China building. In any case, unless there is something more horrendous that we shareholders do not know, the company has plenty of "excess" cash.

At this time, I am calling for the management/board to finally institute the long discussed share buyback to significantly reduce the float and enhance shareholder value. The last thing I want is that the "excess" cash sits in a bank making 1.9% while shareholders watch their holdings drop 40+% in the last few weeks and possibly more. An analogy would be shareholders starving NOW while management keeps all the food that shareholders own to begin with. I will contact institutions and management to campaign for a share buyback as this is the best use of excess cash. Period. I suggest that ALL shareholders send an email to the CEO Peter Blackmore and CFO Fran Barton to voice their support for a share buyback. This is simply a no brainer at this time and a major indication on whether the board is for shareholder value (and people we can continue to support). I and a lot of shareholders have been major supporters of the company for years but there comes a time when the company has to give something back to its own shareholders. This time, there are really no ifs ands or buts. Again, if you agree, send an email to management to voice your support for the share buyback.

Here are the emails:


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