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Halpern Report

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Halpern Capital initiated coverage on ParkerVision with a BUY rating and price target of $11 on October 25, 2005. They reiterated their BUY rating and $11 price target on shares of ParkerVision on November 8, 2005, arguing that “the company offers investors an early opportunity to purchase a unique yet nascent RFIC franchise that is considerably undervalued relative to our forward assumptions.” On January 10, 2006, only eleven weeks after their initial report, Halpern Capital closed its coverage of ParkerVision, stating: “Halpern Capital will no longer be covering PRKR as the Research Analyst who had been covering PRKR has a new position within Halpern Capital.”

 

Selected Quotations from the Halpern Capital Report on ParkerVision, October 25, 2005: “PRKR’s RFIC solutions help minimize the power drain, form-factor, and cost of RF wireless architectures. This is increasingly important as the rise in premium wireless services require progressively complex, power hungry wireless devices.”

 

“We estimate the addressable market for PRKR’s products will grow at a 29% CAGR over the next five years, to $5.76B in 2009 from $2.08B in 2005.”

 

“Under a moderate market penetration scenario, whereby we estimate PRKR could garner a 2% market share in 2006 and expand that to roughly 20% by 2009, we project 2006 revenue of $65 million, growing to more than $1 billion by 2009.”

 

“While product shipments are unlikely in 2005, anticipated design wins in late 2005 should prove to be a catalyst for the shares. In our opinion, Korean or Japanese vendors will likely be the first movers regarding the company’s technology solutions.”

 

“We are valuing PRKR at roughly 1.5x our 2007 revenue estimate of $227 million.”

 

“However, as the company shows some design win activity and products begin to ship, our valuation multiple has the potential for marked expansion.”

 

Commentary on the Halpern Capital Analyst Report on ParkerVision: Scot Robertson from Halpern Capital initiated coverage on ParkerVision with a buy rating on October 25, 2005, valuing ParkerVision as a “concept” company based on expected revenue derived from wireless technology it first developed in 1996. Although ParkerVision has not yet generated revenue from this wireless technology, Robertson predicts ParkerVision will grow revenue from $0.5M in 2004 to $0.7M in 2005, $65M in 2006, $227M in 2007, and ultimately over $1B in 2009.

 

“Under a moderate market penetration scenario, whereby we estimate PRKR could garner a 2% market share in 2006 and expand that to roughly 20% by 2009, we project 2006 revenue of $65 million, growing to more than $1 billion by 2009. While product shipments are unlikely in 2005, anticipated design wins in late 2005 should prove to be a catalyst for the shares. In our opinion, Korean or Japanese vendors will likely be the first movers regarding the company’s technology solutions. We are valuing PRKR at roughly 1.5x our 2007 revenue estimate of $227 million. However, as the company shows some design win activity and products begin to ship, our valuation multiple has the potential for marked expansion.” (Halpern Capital, October 25, 2005)

 

The fundamental problem with the report is that Robertson projects annual revenue growth of over 500% from 2005 to 2009 based on ParkerVision capturing 20% share of a yet to be defined $5.7 billion wireless market, then uses a simple revenue-only valuation based on unsubstantiated assumptions to support his $11 price target for PRKR.

 

(1) Overly optimistic view of ParkerVision’s ability to execute “While product shipments are unlikely in 2005, anticipated design wins in late 2005 should prove to be a catalyst for the shares.” Although the report is barely three months off the press, it is already outdated, because there were no announcements of design wins in 2005. ParkerVision is only in “dialogue”, “discussion”, or “conversation” with “potential” customers.

 

(2) Unrealistic Revenue Projections: 500% Annual Growth? Growing revenue from $0.7M in 2005 to $1B in 2009 would require a compounded annual growth rate of 514%. While this is Robertson’s “moderate market penetration scenario,” we are not aware of any company that has grown revenue 500% annually over a four-year period, much less a company like ParkerVision, which has still not yet generated any revenue from its D2D or D2P technology. The 500% annual projected growth in revenue from 2005 to 2009, which would be the fastest ever for a company going from revenue of less than $1M to over $1B, is ironic for a company like ParkerVision that is saddled with declining revenue and 17 years of consecutive losses. Not even eBay, one of the fastest growing companies ever, surpassed $1B in revenue in four years. It took eBay five years to grow revenue from $5.7M in 1997 to $1.2B in 2002, growing at an annual rate of 191%. Robertson, however, believes that ParkerVision will grow at more than twice the rate of eBay during the Internet boom.

 

(3) Size of Market is $1.1 Billion, Not $5.7 Billion Robertson predicts ParkerVision will generate over $1 billion in revenue by 2009 based on a 20% share of a $5.7 billion wireless OEM market that is not yet defined. CS First Boston, on the other hand, forecasts a total market of $1.1 billion for 2G, 2.5G, and 3G PA’s in 2007. Since CS First Boston forecasts flat growth, ParkerVision would have to obtain almost 100% of the PA market to achieve Robertson’s revenue target of “more than $1 billion by 2009.” According to Robertson, the addressable market for ParkerVision’s products is five times larger than the market defined by CS First Boston.

 

More specifically, while the semiconductor bill-of-materials (BOM) for 3G phones is growing, the dollar content is migrating toward memory and baseband, which limits the future prospects of companies with strong exposure to the RF portion of the handset. According to CS First Boston, in a basic 2G phone, PA, Switch, and Transceiver represent 22% of the handset BOM. In these phones, high-quality voice, talk-time, and battery life are the key selling features. While RF components remain important in 3G phones, especially since more features drain the battery, handset manufacturers are differentiating themselves based on features such as screen quality, camera, imaging, memory storage capability, and fashion. The PA, Switch, and Transceiver BOM drops to 13% BOM in a 3G phone, compared to 22% in a 2G phone, as the Baseband and Application Processor grows from 40% in a 2G phone to 58% in a 3G phone. In fact, the PA falls from 7% in a 2G phone to 3% in a 3G phone.

 

(4) ParkerVision has no history of commercial success. ParkerVision has not earned any revenue from its D2D and D2P wireless technology and has never recorded a profit since it was incorporated in 1989.

 

“Multimillion-dollar annual losses and shifts in strategy have been common at ParkerVision, which began in 1989 developing video control systems. The company has yet to turn a profit in any year and has an accumulated deficit of more than $110 million.” (Bizjournals, June 29, 2005)

 

Robertson conveniently bypasses ParkerVision’s history of zero profitability by valuing the shares solely on his overstated 500% annual growth revenue projections. In fact, ParkerVision has not even booked a total of $1M in wireless revenue over a ten-year period, yet Robertson nonetheless believes they will generate revenue of $227 million in 2007 and $1 billion in 2009. The unrealistic magnitude of this projection combined with the fact that ParkerVision is already behind schedule, since they did not achieve the “anticipated design wins in late 2005,” undermines the overall credibility of Robertson’s analysis of ParkerVision.

 

Unlike Robertson at Halpern Capital, we do not expect ParkerVision to be the first company to grow revenue from less than $1M to over $1B in four years. While we believe ParkerVision will most likely file for bankruptcy during this period, we value the shares at $0.13 based on current market P/S ratios, and project a long term value of $0.26 based on 2007 revenue projections.