UPDATE 1-Smith Micro Software shrs down on rev view suspension

Wed Feb 9, 2011 11:48am EST

Related Topics

* Company cites weak orders from a key customer

* Analysts suggest customer could be Verizon

* Shares down as much as 40 pct

By Bijoy Koyitty

BANGALORE, Feb 9 (Reuters) - Shares of Smith Micro Software (SMSI.O) fell as much as 40 percent on Wednesday, a day after it suspended its 2011 revenue outlook on worries of weak orders from a key customer, which analysts said could be Verizon Communications (VZ.N).

Barely a month after announcing its 2011 revenue outlook, the communication software maker said late Tuesday that it expects first-quarter orders for its core connection manager product, mainly from a "key" customer, to fall below expected levels.

At least two analysts said the customer in question could be Verizon, which accounts for 40 percent of Smith Micro's revenue.

"We believe the key customer is Verizon, which recently launched 4G networks, although the launch was a few weeks later than Smith Micro originally anticipated," Wedbush analyst Scott Sutherland wrote in a note.

Smith Micro attributed the order shortfall to the customer carrying sufficient inventory to support sales of mobile broadband services for the first quarter.

"They (Smith Micro) did not specifically identify the customer, but logic suggests it is Verizon," CL King & Associates analyst Lawrence Harris said.

Given that Smith Micro's gross margins for connection management software is generally greater than 90 percent, the company may post a first-quarter operating loss, Harris added.

Smith Micro also forecast first-quarter 2011 revenue to be $15-20 million, and said it expects the pace of sales for mobile broadband devices using its software to return to "more typical" levels in future quarters.

The company said it intends to provide quarterly revenue outlook for the remainder of 2011.

"I would suspect that they would probably wait for several quarters before deciding whether to reinstate annual guidance," Harris said.

Aliso Viejo, California-based Smith Micro Software makes software products and services mainly for mobile computing and communications industries.

Smith Micro's other important customers include Sprint Nextel Corp (S.N), Dell Inc DELL.O and AT&T Inc (T.N).

Shares of the company, which fell as much as 40 percent to $7.90 in early morning trade, pared some of their losses to trade down 36 percent at $8.32 late Wednesday morning on Nasdaq. (Reporting by Bijoy Koyitty in Bangalore; Editing by Roshni Menon)

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