Halpern Capital initiated coverage on ParkerVision with a BUY
rating and price target of $11 on October 25, 2005. They reiterated
their BUY rating and $11 price target on shares of ParkerVision
on November 8, 2005, arguing that "the company offers investors
an early opportunity to purchase a unique yet nascent RFIC franchise
that is considerably undervalued relative to our forward assumptions." On
January 10, 2006, only eleven weeks after their initial report,
Halpern Capital closed its coverage of ParkerVision, stating: "Halpern
Capital will no longer be covering PRKR as the Research Analyst
who had been covering PRKR has a new position within Halpern Capital."
Selected
Quotations from the Halpern Capital Report on ParkerVision, October
25, 2005
• PRKR’s RFIC solutions help minimize
the power drain, form-factor, and cost of RF wireless architectures.
This is increasingly important as the rise in premium wireless
services require progressively complex, power hungry wireless devices.
• We estimate the addressable market for PRKR’s products
will grow at a 29% CAGR over the next five years, to $5.76B in
2009 from $2.08B in 2005.
• Under a moderate market penetration scenario, whereby we
estimate PRKR could garner a 2% market share in 2006 and expand
that to roughly 20% by 2009, we project 2006 revenue of $65 million,
growing to more than $1 billion by 2009.
• While product shipments are unlikely in 2005, anticipated
design wins in late 2005 should prove to be a catalyst for the
shares. In our opinion, Korean or Japanese vendors will likely
be the first movers regarding the company’s technology solutions.
• We are valuing PRKR at roughly 1.5x our 2007 revenue estimate
of $227 million.
However, as the company shows some design win activity and products
begin to ship, our valuation multiple has the potential for marked
expansion.
Commentary on the Halpern Capital Analyst Report on ParkerVision
Scot
Robertson from Halpern Capital initiated coverage on ParkerVision
with a buy rating on October 25, 2005, valuing ParkerVision as
a “concept” company based on expected revenue derived
from wireless technology it first developed in 1996. Although ParkerVision
has not yet generated revenue from this wireless technology, Robertson
predicts ParkerVision will grow revenue from $0.5M in 2004 to $0.7M
in 2005, $65M in 2006, $227M in 2007, and ultimately over $1B in
2009.
“Under a moderate market penetration scenario, whereby
we estimate PRKR could garner a 2% market share in 2006 and expand
that to roughly 20% by 2009, we project 2006 revenue of $65 million,
growing to more than $1 billion by 2009. While product shipments
are unlikely in 2005, anticipated design wins in late 2005 should
prove to be a catalyst for the shares. In our opinion, Korean or
Japanese vendors will likely be the first movers regarding the
company’s technology solutions. We are valuing PRKR at roughly
1.5x our 2007 revenue estimate of $227 million. However, as the
company shows some design win activity and products begin to ship,
our valuation multiple has the potential for marked expansion.” (Halpern
Capital, October 25, 2005)
The fundamental problem with the report is that Robertson projects
annual revenue growth of over 500% from 2005 to 2009 based on ParkerVision
capturing 20% share of a yet to be defined $5.7 billion wireless
market, then uses a simple revenue-only valuation based on unsubstantiated
assumptions to support his $11 price target for PRKR.
(1) Overly optimistic view of ParkerVision’s ability to
execute
“While product shipments are unlikely in 2005, anticipated design wins
in late 2005 should prove to be a catalyst for the shares.” Although
the report is barely three months off the press, it is already outdated, because
there were no announcements of design wins in 2005. ParkerVision is only
in “dialogue”, “discussion”, or “conversation” with “potential” customers.
(2) Unrealistic Revenue Projections: 500% Annual Growth?
Growing revenue from $0.7M in 2005 to $1B in 2009 would require
a compounded annual growth rate of 514%. While this is Robertson’s “moderate
market penetration scenario,” we are not aware of any company
that has grown revenue 500% annually over a four-year period,
much less a company like ParkerVision, which has still not yet
generated any revenue from its D2D or D2P technology. The 500%
annual projected growth in revenue from 2005 to 2009, which would
be the fastest ever for a company going from revenue of less
than $1M to over $1B, is ironic for a company like ParkerVision
that is saddled with declining revenue and 17 years of consecutive
losses. Not even eBay, one of the fastest growing companies ever,
surpassed $1B in revenue in four years. It took eBay five years
to grow revenue from $5.7M in 1997 to $1.2B in 2002, growing
at an annual rate of 191%. Robertson, however, believes that
ParkerVision will grow at more than twice the rate of eBay during
the Internet boom.
(3) Size of Market is $1.1 Billion, Not $5.7 Billion
Robertson predicts ParkerVision will generate over $1 billion in
revenue by 2009 based on a 20% share of a $5.7 billion wireless
OEM market that is not yet defined. CS First Boston, on the other
hand, forecasts a total market of $1.1 billion for 2G, 2.5G,
and 3G PA’s in 2007. Since CS First Boston forecasts flat
growth, ParkerVision would have to obtain almost 100% of the
PA market to achieve Robertson’s revenue target of “more
than $1 billion by 2009.” According to Robertson, the addressable
market for ParkerVision’s products is five times larger
than the market defined by CS First Boston.
More specifically, while the semiconductor bill-of-materials (BOM)
for 3G phones is growing, the dollar content is migrating toward
memory and baseband, which limits the future prospects of companies
with strong exposure to the RF portion of the handset. According
to CS First Boston, in a basic 2G phone, PA, Switch, and Transceiver
represent 22% of the handset BOM. In these phones, high-quality
voice, talk-time, and battery life are the key selling features.
While RF components remain important in 3G phones, especially since
more features drain the battery, handset manufacturers are differentiating
themselves based on features such as screen quality, camera, imaging,
memory storage capability, and fashion. The PA, Switch, and Transceiver
BOM drops to 13% BOM in a 3G phone, compared to 22% in a 2G phone,
as the Baseband and Application Processor grows from 40% in a 2G
phone to 58% in a 3G phone. In fact, the PA falls from 7% in a
2G phone to 3% in a 3G phone.
(4) ParkerVision Has No History of Commercial Success
ParkerVision has not earned any revenue from its D2D and D2P wireless
technology and has never recorded a profit since it was incorporated
in 1989.
“Multimillion-dollar annual losses and shifts in strategy
have been common at ParkerVision, which began in 1989 developing
video control systems. The company has yet to turn a profit in
any year and has an accumulated deficit of more than $110 million.” (Bizjournals,
June 29, 2005)
Robertson conveniently bypasses ParkerVision’s history of
zero profitability by valuing the shares solely on his overstated
500% annual growth revenue projections. In fact, ParkerVision has
not even booked a total of $1M in wireless revenue over a ten-year
period, yet Robertson nonetheless believes they will generate revenue
of $227 million in 2007 and $1 billion in 2009. The unrealistic
magnitude of this projection combined with the fact that ParkerVision
is already behind schedule, since they did not achieve the “anticipated
design wins in late 2005,” undermines the overall credibility
of Robertson’s analysis of ParkerVision.
Unlike Robertson at Halpern Capital, we do not expect ParkerVision
to be the first company to grow revenue from less than $1M to over
$1B in four years. While we believe ParkerVision will most likely
file for bankruptcy during this period, we value the shares at
$0.13 based on current market P/S ratios, and project a long term
value of $0.26 based on 2007 revenue projections.
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