As things stand at present, the uncertainty on global equity markets triggered by the interest rate and sub-prime crisis in the US looks set to continue over the holiday season, finally settling down at the beginning of October, as the third quarter results and fourth quarter guidance season gets under way. These will herald the end-of year gains, as investors suddenly recall the all-important pronouncement by Cisco Systems Inc. (Nasdaq: CSCO) CEO John Chambers, who said only last Wednesday that the global economy has never looked stronger. His statement was more or less repeated by managers at Cisco's rival, Juniper Networks (Nasdaq: JNPR), at their own analysts' conference the following day.
Of the stocks in my portfolio, the one which stood out last Friday was Radvision Ltd. (Nasdaq: RVSN; TASE: RVSN), which gained almost 8% on heavy volume on day of sharp declines. The reason for the gain was a recommendation from a small investment house, but more important than that was the investment's house reason for issuing its recommendation. Another competitor of Radvision in the video conferencing infrastructure segment has been sold, and Radvision's investors will have breathed a sigh of relief on learning that Cisco was not the buyer. The latter is, after all, a strategic customer with critical importance to Radvision's future, and this all-important connection could have suffered a heavy blow, if Cisco had indeed been the buyer.
The competitor in question is a privately-held company from the UK called Codian, and it went for $270 million in cash and shares to Norwegian visual communications group Tandberg ASA (OSLO: TAA), which reportedly offered a lot more than Cisco was willing to pay. This is yet another reason that supports the estimate that at a value of $300 million (net of cash and cash equivalents), Radvision is a real bargain, given its outstanding performance and the potential of the entire field. Wireline or wireless communications that integrate voice, video, and data relay over IP networks, is a strategic niche for giants such as Cisco, Microsoft Corp. (Nasdaq: MSFT), and IBM Corp. (NYSE: IBM), which are the market leaders, and they all use Radvision's infrastructure.
It has now emerged that the negative behavior of Radvision's stock in recent weeks was largely the result of rumor - known to just a few market players - that Cisco was the one that would acquire its UK rival. So confident were those traders of a Cisco/Codian deal that they sold short positions in Radvision stock. Last month the short volume rose by 400% to 380,000 shares. Last Friday, after its competitor was sold to the Norweigans, the short traders wasted no time in buying back Radvision shares, sending it soaring by almost 11% during the session.
Analysts believe that this has now paved the way for Radvision to win new orders from Cisco as its OEM supplier for video conferencing infrastructure. Earlier this year, for example, the two companies together with defense technology giant Northrop Grumman Corp. (NYSE: NOC), successfully rolled out a large video conferencing network for the US Army, connecting 1,500 briefing rooms throughout Iraq, Afghanistan, and other locations, including Humvee armored vehicles.
Radvision CEO Boaz Raviv spoke last Thursday at the Morgan Keegan 2007 Equity Conference in the "Elvis Presley" capital, Memphis, and his opening words reveal, in my view, exactly where the company's real potential lies. Radvision, he said, was already a step ahead of everyone years ago, when the big issue was voice transmission over IP networks. Now that everyone has moved on to video transmission to desk tops and conference rooms, Radvision is well ahead in the next giant market - video conferencing over advanced cellular handsets.
The latest analysts' estimates for Radvision's results are quite modest - annual sales of $116 million and earnings per share of $1.02, and theoretically, it would appear that at $20-22 per share, its potential will have been realized in full. I feel that this approach is both conservative and misleading, since it does not take into account the developments that will unfold over time, even without factoring in the lingering possibility that the company could be acquired by one of the giants.
I believe that the technological developments now happening in video communications, with more to come before the year is through, are just the beginning for the field. They will have a massive impact, principally in mobile communications between advanced handsets such as the iPhone and others. As an example of what is now happening here, Raviv referred in his presentation to blogs that are now based on video conferencing between surfers. So as I see it, an investment in Radvision, as a key supplier of the various infrastructure applications, could, at some point, turn out to be a fantastic investment, just as Ceragon Networks Ltd. (Nasdaq: CRNT; TASE:CRNT) did exactly a year ago.
Published by Globes [online], Israel business news - www.globes.co.il - on September 11, 2007
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