Tue: ECI on right track

CEO Doron Inbar has put ECI Telecom on the right track; now he has to keep it there. If Top Image continues its good performance, investors are bound to take note sometime. PowerDsine was snatched up at its issue price, but buyers at a lower price are in short supply.

Globes -- August 17, 2004 -- Top Image Systems (TiS) (Nasdaq: TISA) continued its comeback for the sixth straight quarter. It’s taking a long time, and the numbers are small. As in recent quarters, as soon as the company published good results, the share took a tumble. Why? First of all, because speculative investors accumulate the share during the month before the report, in order to sell them immediately afterward. It didn’t work this time, either, because the share isn’t very liquid. The office content management and verification sector is extremely important. I believe that, just as in the case of Mind CTI (Nasdaq: MNDO; TASE: MNDO), the Top Image share will eventually be discovered, but it will take patience. At the end of the day, Top Image was cut to ribbons, Mind CTI went up a little, and Pharmos was unchanged, and lost ground after trading.

I’ll spend a little time talking about on ECI Telecom (Nasdaq: ECIL). The truth is that I’ve always thought that ECI was capable of becoming a leading electronics infrastructure company, because very few companies anywhere have such a large store of accumulated know-how. My problem was always with management. When Doron Inbar, who was CFO, took the reins, I thought, and wrote, that it was a pity that they hadn’t brought in someone with more ability. I was wrong. Inbar has what it takes, as evidenced by the way he has managed the company, where he has worked for over 20 years, since he became CEO. He knew what had to be done to pull the company through the crisis. The truth is that I think that the replacement of Jonathan Kolber as chairman by Shlomo Dovrat was another factor in the company’s success. The company still has a long way to go, because it operates in a very tough and competitive market. With the know-how it has, however, its development capability, and its personnel, there’s no doubt that if Inbar keeps his nose to the grindstone, as he has so far, the company will become what I dreamed about in the 1980s.

Marvell Technology Group (Nasdaq: MRVL), which has lost 26% of its value since early July, drew a “Buy” recommendation from CE Unterberg, Towbin its first since the big drop in the share price. The last such recommendation that I heard about was from Goldman Sachs in February. Marvell, which designs chips for storage and broadband, is a leading design company, or is at least considered as such by many Wall experts who really like the company. Marvell’s technology rests to a large degree on Galileo, the Maalot company that Marvell acquired. Wall Street thinks that in the current state of the game, investors are looking for those shares that are still expensive, despite the recent slide, and are willing to pay a premium for them. Why? Because those shares’ performance shows strength, and is gaining the attention of investment institutions. Marvell isn’t at all cheap. At $20 a share, its 2004 profit multiple is 25. Compared with DSP Group (Nasdaq: DSPG), for example, another top-level chip designer, the Marvell share is priced very high. At $18.40, the DSP share has a profit multiple of less than 18. Based on economic value, people who compare the two companies will prefer DSP, but Marvell has retained its premium for a long time, and will probably do so for the foreseeable future.

Finally, PowerDsine (Nasdaq: PDSN) rose 4.3% to $8.50 on a small turnover, 26% below its issue price of only two months ago. Here you have Wall Street at its finest. Two months ago, the company was valued far beyond my expectations. With all due respect to the company for its excellent performance to date, and to management, which still looks good, this value was a little overdone. So Wall Street goes and lets investors think that $11.50 is expensive, and lets them buy the share at $8.50, and even $7.50 a month ago. Of course, many more investors preferred to buy at $11.50 than there are at the current $8.50. Who says that Wall Street doesn’t care about investors?

Published by Globes [online] - www.globes.co.il - on August 17, 2004

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