By the Numbers - 2004 2nd Half Financials

By Joe Francica

With only a month left of this year, its is an appropriate time to see how companies fared, financially that is, during the second half of 2004 and what we might expect in 2005.As you may know, we review the stock movements of each company that we follow in our Monday Gazette. We have included many different types of companies in our portfolio, some of which rely entirely upon selling GIS technology (e.g.MapInfo, Intergraph, Autodesk), while others use the technology to create enterprise solutions (e.g.IBM, Oracle, Microsoft), and still others are more engaged in location determination (e.g.Trimble, Garmin).

And so we have divided this report into those three main categories to help discriminate the market and make it easier to discern who were the winners and losers, and how the stocks performed versus the broader market.See also the NET CHANGE graph at the bottom of this article for a summary of the gains and losses for this period.

To start, the overall U.S.Dow Jones Industrial (DJI) average, from the period June 4 until November 30, 2005, is up only 2%.The DJI closed on June 4 at 10242 and ended November 30 at 10428.

The GIS, Geospatial and CAD Sector

Of those GIS companies that we follow, Autodesk has had an astounding performance.Their stock has increased 72% over this period and the company announced a 2 for 1 stock split on November 18th but will discontinue its $0.03 per share dividend.According to CEO Carol Bartz, "We believe we have opportunities to continue to drive revenues with growth initiatives, including continued migration to our 3D products and increasing adoption of our lifecycle management solutions.The stock split recognizes our strong performance and our confidence in the future." The move to offer complete solutions instead of simply software may be driving revenue, but is this true for its GIS group?

Until recently, MapInfo had been a laggard in this category, but within the last two weeks its stock has jumped 33%.On November 11th, JP Morgan upgraded the company from a NEUTRAL to BUY rating.MapInfo's strategy has been to sell solutions now for several years and its recently announced vertical market platforms appears to be driving revenue.

Intergraph's stock has not moved much during this period, up only $1 per share and recently announced a disappointing quarter for its Mapping and Geospatial Solutions Division.According to its financial press announcement, "revenue for the quarter was $49.6 million, a decrease of 10.0% from the third quarter of the prior year and a sequential decrease of 3.8% from the second quarter of 2004.The revenue decline from the third quarter of 2003 was primarily due to a large production contract that is nearing completion in 2004."

NAVTEQ began trading on August 6th and opened at $25.05 per share; it closed November 30th at $46.02 for a gain of $72%. Clearly the market likes the potential of NAVTEQ because of its dominant position in the in-vehicle navigation market since so many car manufacturers are offering this option.However, its third quarter financial information offered a warning with a lower net income: "Revenue increased 37% over the third quarter of 2003 to $97.8 million. Operating income grew 13% over the prior year to $22.1 million. Net income was $13.6 million, compared to $18.7 million in the prior year's quarter."

Orbimage may have been resurrected from the ashes as it secured the NextView contract with NGA valued at $500 Million.For the first nine months of 2004, the company sustained a loss of $19 Million versus a loss of $10 Million during the same period in 2003.According to CEO Matthew O'Connell, "We made a conscious decision to sacrifice some short-term operating growth in order to focus our efforts to win the National Geospatial-Intelligence Agency's (NGA) NextView Second Vendor Program satellite procurement.NGA's announcement of our winning bid on September 30 obviously justifies this decision."

Analytical Surveys also lagged for much of this period until the week of November 12th when the stock jumped 148% from $1.30 to $3.22.The jump was precipitated by Tonga Partners that converted its $1.7 million senior secured convertible debenture and approximately $86,000 interest accrued thereon into ASI common stock leading to a substantial increase in stockholder equity.

Tele Atlas was the true laggard of the period falling just 1% in value. The market may be on the sidelines with this company now that NAVTEQ went public and has a substantial cash position that could be used for future investment.

Location Technology Sector

Garmin led all companies in this sector and all companies PERIOD.The company sprinted ahead 73% during this period.It has consistently high ratings by analysts and has shown consistent quarter to quarter to and bottom line growth.According to its third quarter financial its profits nearly doubled due to new product introductions: "For the three months ended Sept.25, the company posted earnings of $67.1 million, or 62 cents per share, up from $35.3 million or 32 cents per share, in the year ago period."

Descartes Systems and Trimble posted double digit gains of 28% and 15% respectively, while Intrado and @Road where the worst performing stocks of all listed companies in our portfolio with losses of 19% and 36% respectively. @Road is perhaps the greatest enigma.According to a November 2nd company press release, "@Road, Inc.announced that it ranked Number 39 on the 2004 Deloitte Technology Fast 500, a ranking of the 500 fastest growing technology companies in North America.@Road also ranked Number 16 on Deloitte's Silicon Valley Fast 50 program.Rankings are based on percentage revenue growth over five years, from 1999-2003.@Road grew 6,894 percent during this period." So where's the evidence in its stock price? Intrado's stock decline is due primarily to downgrades by both JP Morgan and Pacific Growth Securities during this period.

Enterprise Systems Sector

Each company in this group is a large multinational corporation (MNC). The revenues tied to geospatial software solutions are only a small portion of their overall revenue.However, each company has identified location technology as a tool that can be leveraged in their overall software solution strategy.Each has also staked a significant part of their tactical positions in business intelligence (BI) and therefore is looking to gain a strategic advantage by offering a BI solution that integrates location technology within their overall product development plan.Oracle, for example, continues to develop is spatial platform; IBM is making much more noise than in recent years by promoting is DB2 Spatial extensions, and Microsoft, while more a player in desktop mapping and wireless location services, is also looking at BI solutions that use its MapPoint platform.In addition, Pitney Bowes acquired Group 1 software during this period and will aggressively pursue the business geographics market.And Stewart Information Services Corporation, another MNC, with sister companies such as Stewart Title, REI Data, Landata Systems, Stewart Mortgage, and others continues to look for ways to leverage GlobeXplorer, a wholly-owned subsidiary, that was one of the first application service providers of remotely sensed data.Stewart advance 34% this period, leading this group of MNC's.

What can we expect in 2005?

The technology market is poised for a more significant rebound in 2005. We are beginning to see movement in the overall IT sector as job growth is following the good news being reported by bottom line profit growth during the last six months.Will that spill over into the geospatial market sector.It is certainly looking that way as Directions Magazine continues to receive job postings at a steady rate and key companies such as MapInfo, Autodesk, Garmin, NAVTEQ, Stewart, and Oracle have accumulated impressive gains.

Published Thursday, December 2nd, 2004

Written by Joe Francica

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