Santa Ana’s Smith Micro Software Inc., a maker of cell phone software, delivered on its promise to diversify its customers.
Just a year ago Smith Micro once saw Verizon Wireless, a unit of New York-based Verizon Communications Inc., make up more than 70% of its revenue.
At the end of last year it hovered around 60%.
It recently dipped down to a comfortable 40%, according to Robert Elliott, chief marketing officer.
“As a percent of our business it has shrunk dramatically,” he said. “We will continue to support Verizon with all our heart. They were our No. 1 customer and we think they are a good one to have. But at the same time we are growing our customer base throughout the world.”
Smith Micro sells a few types of software to wireless carriers, which integrate Smith Micro’s programs into their mobile devices and services.
For Verizon, Smith Micro provided the software for its V-Cast service, which lets users download and listen to music on their mobile phones and helps Verizon compete with Apple Inc.’s iTunes.
Last year, Verizon announced it was changing its strategy for selling music via cell phones.
In July it partnered with Rhapsody, the digital music service from Seattle-based RealNetworks Inc.
Some of its newest phones come with unlimited song downloads for a Rhapsody subscription of $15 a month.
Music Kits
Verizon still uses Smith Micro’s software for what’s known as “over-the-air” downloads and music kits that include software, cables and ear buds in Verizon stores.
“Carriers on the whole are doing a lot of different marketing programs in the music sector,” Elliot said. “Smith Micro’s software manages content, but we don’t offer any. We are not a store like Rhapsody.”
Where sales to Verizon are shrinking, Smith Micro is making up the difference with new customers, Elliot said.
It’s added half a dozen customers in the past year or so, he said.
Second quarter revenue was up more than 50% and totaled $24 million.
The company is pursuing new deals with international wireless carriers, including Japan’s NTT DoCoMo Inc., Britain’s Vodafone Group PLC and Switzerland’s Orange Communications SA, which is part of Paris-based France Telecom.
Sales from abroad make up about 10% of its total, Chief Executive William Smith said in a conference call with analysts.
“They are using Verizon as a bridge to attack other companies within the same sphere,” said an analyst who asked not to be named in this story. “The software has been proven with Verizon and now they are attacking the European and Asian companies.”
New Deal
The analyst said it’s likely that Smith Micro is in talks for a deal with South Korea’s LG Group, which has a cell phone unit in San Diego.
Other customers include Sprint-Nextel Corp., Cellular South Inc., U.S. Cellular Corp., Alltel Communications LLC and T-Mobile USA Inc.
The company recently opened a sales office in Stockholm, Sweden, as its European headquarters, where it’s looking to target cell phone makers Sony Ericsson Mobile Communications AB and Nokia Corp.
Some of the diversification came by way of a slew of acquisitions,Smith Micro made five buys last year.
“Typically, we buy technology assets rather than an entire company,” Elliott said. “That’s always been part of our strategy.”
It’s most recent acquisition,a $60 million cash buy of Chicago-based PCTEL Inc.’s mobility solutions group,was a long time in coming.
“We worked on it for over three years,” Elliott said.
Buying Breather
The company is taking a breather from their buying binge to focus on a fast-growing part of its sales: so-called “connection manager” software that runs on a PC or mobile device and allows for a wireless connection to the Internet though the carriers’ network.
The unit did roughly $13 million in sales in the second quarter, more than double from a year earlier.
For the current quarter, analysts are expecting Smith Micro to see $5 million in profits on sales of $27 million.
More acquisitions could come at the end of the year, Elliott said.
“We are in discussions right now,” he said. “Behind the scenes, some of the activity has not slowed down.”
