Openwave Systems (NASDAQ: OPWV)
Analyst Day Outlines A Strategy For Returned Growth

Investment Summary

The company outlined a strategy to return to 15-20% revenue growth
and a 15-20% operating margin within the next 12-18 months. Market
acceptance of new products is key to achieving this goal, but at 2.3x
net cash we think downside is limited.


Event

Openwave hosted its analyst day in NY yesterday. Management
outlined a strategy around new products and improved sales
execution to bring the company back to a revenue growth trajectory
of 15-20% in the next 12-18 months.


Key Points

• Sales execution and new products are expected to return the
company to 15-20% revenue growth in 12-18 months.
Management remained hopeful its next generation personalization
and profile services (OPPS), on-device portal (ODP), and advanced
messaging products will help offset declining legacy revenue
beginning in the 2H of FY'07. Meanwhile, the company is focused
on improving sales execution and has hired new sales GMs in
EMEA and Japan.


• Software infrastructure addressable market is expected to
grow at a 20% CAGR through 2009. The company outlined an
expectation for its addressable market to grow at a 20% CAGR
from $4.2BN in 2006 to $7.1BN in 2009.

• New products are expected to grow at 54% CAGR through
2010. The combined market opportunity for its upcoming
personalization, on-device portal, and advanced messaging
solutions is expected to grow at a 54% CAGR from $696MM in
2006 to $2.6BN in 2010.

• Musiwave appears well positioned to grow in the December
quarter. Musiwave is showing signs of improvement given the
recent Vodafone UK win and today's expected price drop for
over-the-air full track downloads at customer SFR.

• Target operating model looks for a 15-20% operating margin.
Management is targeting gross margin at 65-68%, R&D at 15-20%,
S&M at 20-25%, and G&A expense at 8-10% of revenue.

• We maintain our Buy rating and $11 price target. While the
market opportunity remains compelling, the company has yet to
demonstrate an ability to execute and partake in the growth
associated with data adoption. Regardless, we believe downside is
limited at current levels given $3.78 in net cash per share and
positive cash flow generation expected to return next quarter.


Valuation/Risks

Our $11 price target is based on 16x our $0.37 FY08 EPS estimate
plus $3.78 in net cash per share. Investment risks include slowing
legacy revenue, restructuring execution, stock option inquiry, a
delayed 10K filing, high DSOs, customer concentration, uncertain
uptake of new products including Musiwave, and potential technology
displacement.

Management outlined a strategy for returned growth at its analyst day yesterday. The company hosted its annual
analyst day in NY yesterday. Management outlined a strategy around new products and improved sales execution to
bring the company back to a revenue growth trajectory of 15-20% over the next 12-18 months. Ongoing trials for its
new converged Adaptive Messaging products have shown early promise. Its new Adaptive Messaging, Personalization
and Profiling (P&P), and Smart On-Device Portal products are all expected to launch around the same time in the 2H
F2007. While a focus on improved sales execution may help to stem declining license sales near term, a return to
15-20% overall revenue growth is largely dependent on the successful launch and market acceptance of these new
products. Encouragingly, Musiwave is showing signs of improvement given the recent Vodafone UK win and today's
expected price drop for over-the-air full track downloads at customer SFR. We maintain our Buy rating and $11 price
target.