Smith Micro Software (SMSI)

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Lawrence Gu

Smith Micro Software designs, develops and markets software products and services primarily for the mobile computing and communications industries. The company makes money through its portfolio of wireless software products and services including a wide range of software solutions including its QuickLink® family of products.^[1] SMSI then sells their products and services to many of the world’s leading mobile network operators, original equipment manufacturers (“OEM”), device manufacturers and enterprise businesses, as well as directly to consumers. A large portion of SMSI's sales are dependent on very few large wireless communication companies.

Business Growth

SMSI separates revenues into two main segments:

• Wireless includes the company's connectivity and security management, mobile VPN, media and content management, device management, Push-To-Talk, Visual Voicemail, contact and calendar syncing and video content delivery and optimization solutions.^[2]

• Productivity & Graphics includes retail and direct sales of compression and broad consumer-based software.^[3]

Trends and Forces

SMSI is Highly Dependent on a Few Major Customers due to Industry Consolidation

SMSI's revenues are highly dependent upon the biggest wireless communications companies. For example, Verizon Communications (VZ), Sprint Nextel (S) and AT&T (T) accounts for roughly 66.3% of the company's revenues. Because the industry is so consolidated, these big three companies have considerable leverage over the price charged for SMSI's products, which therefore influence the top-line sales that SMSI may achieve. To increase sales outside core vertical markets, for example to large enterprises, requires SMSI to devote time and resources to hire and train sales employees familiar with those industries but customers in other vertical markets may not need or sufficiently value SMSI's current products or new product introductions.^[4]

Emerging Markets is the Next Source of Opportunity for SMSI

By moving away from traditional domestic markets, SMSI plans to expand its product offerings to support new higher speed networking and 4G technologies such as HSPA+, LTE and WiMAX network protocols. However these markets already have competitors in them, so SMSI's depends on carrier customers’ ability to successfully introduce new mobile services enabled by SMSI's products and the company's own ability to broaden carrier customer base, which is difficult and time-consuming.

Competition

SMSI competes with other software support companies to large wireless communication companies, such as:

• MicroStrategy (MSTR) is a worldwide provider of business intelligence software that enables companies to report, analyze and monitor the data stored across their enterprise.^[5]
• Silicon Graphic Internat (SGI) is a provider of clustered computing and storage, high-performance compute and storage, and data center technologies integrated with a choice of software, customer support services and professional services.^[6]
• TIBCO Software (TIBX) is an independent provider of middleware and infrastructure software.^[7]

References

1. ↑ SMSI FY2010 10-K, Pg 1
2. ↑ SMSI FY2010 10-K, Pg 25
3. ↑ SMSI FY2010 10-K, Pg 26
4. ↑ SMSI FY2010 10-K, Pg 21
5. ↑ MSTR Business Description
6. ↑ SGI Business Description
7. ↑ TIBX Business Description