Smith Micro shares rise after Q4 profit beats Street

By Supantha Mukherjee

BANGALORE (Reuters) - Shares of Smith Micro Software Inc (SMSI.O) rose 21 percent Thursday, a day after the wireless communication software developer's quarterly profit beat market estimates as gross margins improved.

The rise in shares was due to the earnings beat and covering of short positions by investors, Morgan Joseph analyst Kevin Dede said.

As of February 15, short interests were at 5.6 million shares, Dede said.

Late last month, shares of Smith Micro fell to their lowest in more than two years on concerns that costs related to recent acquisitions may hit quarterly results.

The Aliso Viejo, California-based company earned 25 cents a share, excluding items, for the fourth quarter. Analysts on average were expecting earnings of 20 cents a share, excluding special items, according to Reuters Estimates.

On Wednesday, the company said it expects revenue of $95 million to $105 million for 2008. Analysts expect revenue of $102.7 million.

"Revenue guidance is based on deals currently in-hand, and is not dependent on new wins," Rich Church, an analyst at Collins Stewart said in his research note.

VERIZON AFFAIR

An uncertain macroeconomic environment coupled with a move by Verizon Wireless to package music download software along with mobile phones rather than using Smith Micro's music download kit had raised worries about the company's future growth prospects.

Verizon Wireless, a venture between wireless carriers Verizon Communications (VZ.N) and Vodafone Group (VOD.L), is the largest customer for Smith Micro.

"While the sales mix shifted to lower revenue software distributed in the phone box versus music connectivity kits, Smith also lost lower margin business and replaced it with much higher pure software business," Morgan Joseph's Dede said.

Gross margins for the quarter increased to 77 percent from 68 percent, the company said in a statement.

"I want to reiterate that we have a very strong strategic relationship and we will continue to earn our long-term relationship with Verizon Wireless," Chief Executive Bill Smith said in a conference call.

LOOKING AHEAD

Smith Micro said in November last year it would acquire media software maker e-frontier's 3D graphics products, and in December the company agreed to buy telecommunications software and hardware maker PCTEL Inc's (PCTI.O) mobility solutions group.