(NASDAQ:PRLS)
Initiating Price: $3.65
Current Rating: 4
12-18 Month Price Target: $7.00
Price Target Increased from $7.00 to $8.00 on 08-29-05
Price Target Increased from $8.00 to $10.50 on 12-02-05
The Company has developed and continues to develop controller products and applications for sale to OEMs and distribution channels. Digital document products include monochrome (black and white) and color printers, copiers, fax machines and scanners, as well as multifunction products ("MFPs") that perform a combination of these imaging functions. In order to process digital text and graphics, digital document products rely on a core set of imaging software and supporting electronics, collectively known as a digital imaging system. Network interfaces supply the core technologies to digital document products that enable them to communicate over local and wide area networks and the Internet. The Peerless family of products and engineering services provide fully integrated advanced and proprietary imaging and networking technologies that enable the Company's OEM customers and third party developers for OEMs to develop stand-alone and networked digital printers, copiers, and MFPs quickly and cost effectively. The Company markets its solutions directly to OEM customers including Canon, KonicaMinolta, Kyocera Mita, Lenovo (formerly Legend), Oki Data, Panasonic, Ricoh, and Seiko Epson. The Company has expanded its solution offerings by incorporating related imaging and networking technologies developed internally or licensed from third parties. The Company has developed more diverse distribution channels for its products and expanded its target markets to distributors, value added resellers, system integrators, OEM sales operations, and geographically to the People's Republic of China.
The market for technologies that enable the interface of printing devices with output devices such as PCs, handheld devices, networks and others is reasonably complex. Enabling that process requires that technologies be able to interpret, compress and reconfigure data from various types of technologies both hardware and software based. That process is perhaps made significantly more complex by the advent of the demand by printing device customers for delivery of print applications involving high-speed color. In addition, the market is also characterized by a relatively small number of print device OEMs that can probably be broken down into two categories. The upper tier of these enterprises include companies like Hewlett Packard, Xerox and perhaps Cannon while the smaller (middle tier) players included companies like Kyocera Mita ("KM"), Minolta, Konica, Sharp, Toshiba and others. Historically, the company has done business with the majority of the pertinent OEMs in the space, however, nearly all of these customers to varying degrees develop competing technologies in-house as opposed to acquiring them form companies such as PRLS. My view is that the complexity of high-speed color may ultimately force many of these OEMs, especially those in the middle tier, to seek a greater portion of outsourced solutions from specialized companies like PRLS in order to keep pace in an environment that is trending toward high-speed color functionality.
In response to the recent high-speed color paradigm, for the past several years, the company has devoted considerable resources to the development of a new high-speed color architecture called "Sierra". Sierra was designed as a modular platform that allows OEMs to utilize all or specific parts of the architecture to fit the specific requirements of their printing device(s). In that regard, PRLS has designed Sierra so that it is optimized in all or in part by OEM customers. While that sort of "open" approach carries advantages and disadvantages, my belief is that its is the best approach to address the needs of customers seeking that sort of varied functionality. Moreover, the company recently signed a highly significant agreement involving both engineering services and ultimately licensing opportunities with Kyocera Mita ("KM"), that I view as both a substantial financial opportunity, and a significant validation of the technology and the strategy on the face.
DISCLAIMER STATEMENT
The information contained in this report has been written by David Lavigne of EdgeWater Research Partners LLC ("Edgewater") and has been derived from sources considered reliable, but cannot be guaranteed by us. Edgewater and Lavigne are not aware of any material conflict of interest known at the time of the publication of this report. Financial projections and estimates herein represent our independent analysis based upon information in conjunction with the Company's publicly available financial statements. Edgewater and Lavigne may maintain positions in the securities referenced, which may change at any time without notice. Edgewater does not receive fees, warrants or any other compensation from issuers in connection with its research. It does however, encourage issuers and it representatives to subscribe to Edgewater's research, and from time to time, issuers and or their representatives may also purchase individual copies of Edgewater's research products. Edgewater and Lavigne may own options, rights or warrants to purchase any of the securities of the Company. This report is for informational purposes only and is not to be construed as specific investment advice or recommendations, nor as an offer to sell or a solicitation of an offer to buy any securities. The securities referenced are speculative in nature and may not be suitable for your specific investment objective. For specific investment advice or recommendations, please consult with your investment representative.
