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Smith Micro Revives

Smith Micro Software Inc., one of Orange County’s oldest software makers, can hear it now.

After years of sputtering revenue, a limp stock price and little else to excite investors, the Aliso Viejo-based company is stirring from the doldrums.

The company, founded in 1983 on fax software know-how, is seeing profits and is set to post its biggest year in sales.

The catalyst: landing a contract a few years ago with New York-based Verizon Wireless to provide software to get laptops, digital assistants and wireless phones linked to the Internet on citywide networks.

“That deal has really paid off,” said Richard Church, an analyst with CE Unterberg Towbin Inc. in New York.

Mind you, Smith Micro still is small. The company counted a recent market value of $200 million. This year, analysts expect $33 million in sales.

The company is getting some attention. Smith Micro’s shares have rebounded from less than $4 last spring to about $9 at recent check,close to the $10 mark they reached in late 2004.

Smith Micro is getting more notice on Wall Street these days with two analysts starting coverage of the stock since June. Five analysts cover the company in all.

For 2005, Smith Micro reported sales of about $20 million, up 52% from a year earlier. The company returned to profitability in the second quarter. It started 2006 with a record backlog of $4 million.

Analysts expect another 50% sales gain this year. That would be a high water mark for Smith Micro. Previously, the company’s biggest sales year came way back in 1998 when it had revenue of about $22 million.

The intervening years were tough. From 2001 to 2003, the company couldn’t clear $10 million in yearly sales.

“We never gave up,” said Bruce Quigley, vice president of business development and investor relations.

As with other tech companies, Smith Micro saw growth in the 1990s. That’s when its software helped old dial-up modems communicate with computers. Its biggest customer was U.S. Robotics Corp.

Sales grew with the Internet and PC sales.

But then Microsoft Corp. started offering its own modem software as part of Windows. By 1999, computer makers hardly saw a reason to go to a secondary source such as Smith Micro.

“We realized very quickly that we needed to reinvent ourselves,” Quigley said.

During the technology boom of the late 1990s, Smith Micro again looked to the Internet for a line of business.

It decided to go after some of the trendy markets of the day: hosting and e-commerce. It entered the market with an acquisition. It also offered some voice over Internet protocol software.

Everyone knows what happened with e-commerce and hosting. Smith Micro went into a revenue slump.

In 2003, the company turned to wireless software. The big wireless service providers were looking at offering Web access via citywide networks.

Smith Micro took its old modem software and reshaped some of it to help laptops, phones and other devices link with wireless networks.

“We understood communications software very well,” Quigley said. “It was just a matter of taking some of the source code we had and making sure we were able to come to the wireless network.”

At first, Smith Micro worked with Atlanta-based Cingular Wireless LLC. Verizon came out with its own software, which was “clunky,” according to Quigley.

In 2004, Smith Micro landed the Verizon contract. Now Dell Inc. has signed on to include the software in some of its laptops. More computer makers are expected to follow.

Smith Micro is doing other business with Verizon.

Last summer, the company paid about $13 million for Allume Systems Inc., a subsidiary of Novato-based International Microcomputer Software Inc.

Allume’s key product is StuffIt Deluxe, which lets computer users compress and expand large files.


Promising Technology

The big hope for Smith Micro: StuffIt Wireless, which can compress photos on phones, shrinking their file size by up to 30%.

This could give the phone makers more room to store digital files or add features.

Smith Micro has expanded sales to Verizon with software for its V-Cast music service. The offering is a sort of mobile iTunes, allowing users to buy songs that are beamed to their phones.

With more than half of sales coming from Verizon, Smith Micro is closely tied to its biggest customer.

Prospects for landing the other major wireless service providers aren’t great. Reston, Va.-based Sprint Nextel Corp. used its own software. Cingular, which is rolling out the service this year, tapped a Smith Micro rival.

The company is looking to get deals with carriers abroad, such as Japan’s NTT DoCoMo Inc. and London-based Orange SA, Quigley said.

Going global could take a while.

“We’re not going to get 100% of the customers at once,” Quigley said. “We may add a customer here and there.”

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