The third issue of M-Systems on Wall Street closed yesterday with great success. The company issued 2.45 million shares at $68.25 per share, 3.4% under yesterday's closing price of $70.625. The company issued two million new shares, and 450,000 were sold by parties at interest. The company raised a net total of $167 million - $137 million for the company and $31 million for the shareholders.
M-Systems manufactures miniature chips capable of converting computer drives. The company's share strengthened by a factor of 21 in expectation of growth in the market for palm pilots and Internet devices. The amount raised yesterday was almost double the sum planned when the issue was first announced last month. At the time, the share was trading at $38. The share reached a record $80 last week.
The company's growth accelerated, following a commitment on the part of Microsoft, the world's largest software company, and on the part of other companies, to incorporate M-Systems flash-memory chips into designs for set-top cable television boxes, Internet-capable telephones, and other hand-held devices.
"There is nothing comparable on the market", said Jim Coleman, an analyst at Fechtor, Detwiler & Co. in Boston, who upgraded his rating of the company to a "strong buy" last month. "They're way ahead of everybody in miniaturizing the capacity of the hard drive".
While M-Systems hasn't turned a profit since 1992, Chief Executive Dov Moran said in a November interview with Bloomberg, "We're rapidly approaching profitability". The company lost $26,000, or eight cents a share, in the fourth quarter of 1999, compared to a $797,000 loss in the corresponding period of 1998. Revenues climbed to $11.1 million for the fourth quarter of 1999, compared with $4.9 million in the corresponding period of 1998. M-Systems's revenues rose to $30.4 million for all of 1999, an 86% jump over the previous year.
Coleman said he expects M-Systems's shares to continue their climb as announcements pile up about new companies that have adopted its chips. Yesterday, Akron, Ohio-based Telxon Corp. said it would use M-Systems's DiscOnChip product for memory storage in its new hand-held computer terminal and mobile phone.
M-Systems 's products have captured the market from Intel Corp. and Advanced Micro Devices Inc., which have worked for years to devise flash-memory chips that retain small amounts of data in computers and phones. The Israeli company's DiscOnChip products can store as much data as a disk drive, and its software is compatible with all main operating systems, including Windows, Unix, Java, and Linux.
Still, the company's exclusive focus on flash-memory technology could leave it vulnerable to new technological developments, analysts said.
M-Systems's successful issue reveals the amazing round accomplished by the Giza and Templeton funds within a short time. The two funds entered the list of shareholders in M-Systems only in July 1999 at $5.5 per share, in a private placement, which raised $5 million for M-Systems. Giza invested $3 million at the time, receiving a package of 545,000 shares and 312,000 options exercisable until December 2002 at a price of $5.75. Templeton invested $2 million in exchange for 364,000 shares and 208,000 options under similar conditions.
Last night the two funds already realized part of their investment. Giza sold shares for $14.3 million, and remained with a shares and option package worth $43.5 million. Templeton sold shares for $9.6 million, and remained with a share and options package worth $30 million.
This handsome round may be only a small example of everything going on around Israeli high tech and shares on Wall Street. Time is short, the multiples are amazing, and the money is simply big.
Published by Israel's Business Arena on March 8, 2000