Neoware Sees Growth in Thin Client Sales in Fiscal Q3

Published: May 8, 2006

by Timothy Prickett Morgan

With all of the issues surrounding the security of the Windows-based PC environment, you would think that thin clients would have long since taken off, at least in the corporate world. I know from personal experience that I would like to have a thin client network in my home, which takes less power and support than taking care of four PCs and two laptops. Somehow, I never get around to installing it. But if the financial results of thin client vendor Neoware are any indication, maybe businesses are starting to appreciate the value of the TC as opposed to the PC.

In the fiscal third quarter ended March 31, Neoware says that it booked $27.8 million in revenues, up 46 percent from the same quarter a year ago. Neoware was able to push $2.3 million of that to the bottom line, an increase in net earnings of 31 percent, which demonstrates, as always, that growth costs money. Still, that worked out to 13 cents a share, which is better than the 11 cents it posted in the year ago quarter.

Neoware has posted record results in the past three quarters, and was emboldened enough by this to float 3 million new shares onto the Nasdaq in mid-February, which helped it raise $71.2 million; with the exercising of the over-allotment of another 450,000 shares, which underwriters keep in reserve to push a little extra stock into the market if a float is going well, and cash flow from operations in the last few quarters, Neoware finds itself in the position of having $118 million in cash and short-term investments in the bank. Neoware went public in 1997, and while its stock peaked in the $20-range a few times in 2002 and 2003, it was down in the dumps until last summer, when it took off and headed to $30. The float has taken some air out of the stock, but even so, the company has a market capitalization that is currently kissing $500 million. When June rolls around and it ends its fiscal 2006, Neoware would have managed to remain profitable for five years and triple revenues.

"This quarter, we were able to grow our revenues significantly with less customer concentration than in recent quarters," said Michael Kantrowitz, Neoware's chairman and CEO in a statement accompanying the financial results for the fiscal third quarter. "In this quarter, our largest individual end customer generated approximately $2 million of revenue while in the prior two quarters our largest end customers each generated nearly $6 million per quarter. While we expect large orders from individual customers to result in concentrations in future quarters, we are encouraged by the broadening of our end customer base and believe this is a very positive sign that shows increasing breadth of demand for our products."