SCMR - Sycamore Networks

[slkiel]

I have an upcoming Q&A on a piece I wrote about SCMR and wanted to solicit some feedback from the forum in advance. This has been a Marty Whitman favorite for years. Klarman bought into it in Q1 2011 at higher prices, but chances of their new product, IQstream, going to market were greater at that time. It's trading below net cash and investments, but IQstream would be a lottery ticket. Small chance of success, but big upside if so. Downside is limited b/c of balance sheet. Does anyone have additional information on IQstream testing? It's been tough to determine potential chances of success and potential revenue if it does get a customer. The piece is below. Appreciate any feedback.

 

http://www.gurufocus.com/news/179528/sycamore-networks-a-lottery-ticket-that-pays-you

[LC]

it's hard to argue with a stock trading at less than current assets. my concern is whether management decides to burn through those assets pursuing IQstream. however i think this is unlikely for two reasons: (1) as mentioned in the article, management has historically had an aprox 15mil burn rate and (2) the wireless data market is an expanding market. i plan on doing more in depth analysis this weekend, will report back monday!

[Guest valueInv]

I have an upcoming Q&A on a piece I wrote about SCMR and wanted to solicit some feedback from the forum in advance. This has been a Marty Whitman favorite for years. Klarman bought into it in Q1 2011 at higher prices, but chances of their new product, IQstream, going to market were greater at that time. It's trading below net cash and investments, but IQstream would be a lottery ticket. Small chance of success, but big upside if so. Downside is limited b/c of balance sheet. Does anyone have additional information on IQstream testing? It's been tough to determine potential chances of success and potential revenue if it does get a customer. The piece is below. Appreciate any feedback.

 

http://www.gurufocus.com/news/179528/sycamore-networks-a-lottery-ticket-that-pays-you

 

Be careful about IQStream. I work in the mobile industry and I haven't heard of IQStream getting any customer traction. The industry is small and you usually hear about who is winning at which operator. This information is a about 10 months  old. At that point, they were marketing it but i didn't encounter them at any operators - usually a bad sign. I have not checked lately.

 

Also, Sycamore's old product was selling into wireline carriers and not into mobile operators. They are different markets and need salespeople with a different rolodex.

[slkiel]

Thanks guys- I appreciate the feedback. I agree that the chances of IQStream going to market are very low. From what I understand, they are focusing their testing in Europe. Other than vodafone, I've had difficulty getting confirmation on who the other testing partners are. I wouldn't be interested in SCMR for IQStream alone. The key is the cash and investments, but there is that small potential for a hit with IQStream as well. It's just been nearly impossible to quantify that.

[eclecticvalue]

Since the last post three years ago, there have been many changes for this company.

 

1. They have adopted a dissolution plan to liquidate the company and the liquidation value is at $.35 a share. Currently it is trading at $.52 a share.

 

2. The reason why it higher than the liquidation value is two activist investors (Lloyd Miller and General Holdings) bought huge stakes in the company so they can stop the liquidation plan. Their plan is to monetize the NOL's which are worth over $850 million.

 

3. If it is successful and if they continue monetizing the NOL's the stock could be worth a lot more.

 

The stock overs a downside protection of -30% and upside potential could double if they stop the dissolution plan

 

Any thoughts on this?

[Travis Wiedower]

It's an interesting situation I've been thinking about lately. The problem is the two owners, Daniel Smith and Gururaj Deshpande, own 52% of shares and they already voted to liquidate (most likely in the next few months). The decision to stop the liquidation is solely up to them so it's a hard thing to handicap. They're both in their mid to late-60s so it's possible they don't give a fuck about the "potential" these hedgies keep talking about and they just want to be done with the situation. Taking a guess at expected value is a complete shot in the dark, but here's one to get the conversation going:

 

80% chance they liquidate and you get $0.35

19% chance they reverse it and the NOL shell is moderately successful and you get $1.59 (3x)

1% chance they reverse it and it turns into something like ALJJ and you get $5.30 (10x)

 

That results in an EV of $0.635 so a gain of $0.105 from today. That is of course overly simplified and the last two numbers don't adjust for TVM so the discounted expectation is less than the $0.105 gain.

[eclecticvalue]

Thanks for your analysis Travis. Also you could short it for 30% gain. From the 10-Q it looks like the last distribution is happening on March 7th 2016. We will know very soon what will happen.

 

 

If they reverse the liquidation plan they would need to raise capital and that alone could prop up the stock price or dilute.