RADISYS CORP RSYS
September 01, 2017 - 3:05pm EST by
coalone
2017 2018
Price: 1.53 EPS N/A N/A
Shares Out. (in M): 39 P/E N/A N/A
Market Cap (in $M): 60 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 60 TEV/EBIT 0 0

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Description

Overview

 

We presented Radisys in September of 2013 and it hasn’t worked out as planned… this is a microcap company and suitable for accounts other than personal accounts...

 

As a refresher, Radisys Corporation (RSYS) is the services “acceleration” company, that helps communications and content providers and their strategic partners create new revenue streams to drive costs out of the services delivery infrastructure. RSYS’s suite of software products enable its customers to maximize, virtualize and monetize their networks. Their products fall within two operating segments: Software-Systems and Hardware Solutions. But for the purpose of this update, we will focus on the Software-Systems and potential upcoming value creating catalysts.

 

RSYS is small in terms of its current $58.5MM EV (and smaller than the last time we posted it).  However small it is on an enterprise basis, it possesses a highly disruptive technology that enables the shift from “proprietary” to “open systems” - which is a large opportunity for the company. The shift that is occurring is rendering the classical network approach antiquated while the move SDN (software defined networking) and NFV (network functions virtualization) is revolutionizing Service Provider infrastructure and VoLTE (voice over long-term evolution) is driving meaningful efficiencies for Service Providers. As the rapid adoption of new standards and technologies occurs, we believe RSYS is positioned to share in the transformation in a meaningful way, especially given the current valuation and trailing $169MM in trailing twelve month revenue.

 

Products

Software-System Products are targeted at delivering differentiated solutions for service providers, mainly within telecommunications, to enable their deployment of next generation networks and technologies. RSYS’s products include the three product families listed below.

 

FlowEngine products target the communication service provider traffic management market and are a family of products designed to rapidly classify millions of data flows and then distribute these flows to thousands of VNFs (virtualized network functions). By offloading the processing for packet classification and distribution FlowEngine improves the virtualized function utilization and makes the overall NFV architecture more efficient.

  • 5 year…$2B market opportunity; product margins  > 50%

  • Multiple proof-of-concepts in flight

 

MediaEngine products are designed into the IP Multimedia Subsystem (IMS) core of telecom networks, providing the necessary media processing required for a broad range of applications including VoLTE, VoWifii and WebRTC. The MediaEngine  strategy helps service providers consolidate their real-time IP media processing into a vendor and application agnostic platform, which drives out cost out of their service delivery platform and enables accelerated deployment and introduction of new services.

  • Recently awarded exclusive partnership with Nokia

 

CellEngine  software provides the communication linkage between wireless end user devices and mobile core networks through small cell base stations that mobile service providers are deploying to optimize wireless network spectrum utilization and coverage.

  • Leading with services and targeted opportunities to license/monetize software

  • Open standard solution for multiple industry standard bodies







Customers

RSYS’s customers are increasingly migrating from selling through channels towards selling directly to service providers, including large Tier 1 service providers such as Verizon Wireless and Reliance Jio Infocomm. RSYS will continue to leverage channel relationships as well as long-standing customers such as: Phillips Healthcare, Nokia Solutions and Network, Arrow Electronics, Verint Systems, Mitel, Lestina International and West Corporation.

 

RSYS’s five largest customers account for approximately 69.6% of revenues in 2016.  Verizon and Phillips Healthcare were the largest customers in 2016, accounting for 35.9% and 15.7% of revenue.

 

See below for a list of customers and the application incorporated via RSYS products.

 

Customer

Application/End Customer

Verizon Wireless

DCEngine data products and FlowEngine traffic distribution products

Philips Healthcare

Medical imaging equipment

Mitel

ATCA products and real-time media processing systems

Reliance Jio Infocomm

Real-time media processing systems for VoTLE/VoWifi

Nokia Solutions and Networks

3G wireless infrastructure equipment, ATCA and VoLTE



Strategy & Objectives

 

Market Disruption

  • Deploy disruptive and largely open-based technologies

  • Improve spectrum efficiency and increase ARPU

  • Reduce operating and capital expenses for customers

Proof Points

  • U.S. service provider: 2015 revenue $5MM grown in 2016 to > $70MM; now dealing with the digestive part of the growth cycle

  • Asian service provider: over $30MM since 2014

  • Over 15 active proof-of-concepts and trials across strategic product lines

  • Enabling the adoption of OPEN telecom solutions in Next Gen Networks

 

Conclusion

RSYS’s “pause” in growth is a concern, but with a $60MM EV and trailing 12 month revenue of $169MM and multiple ways to win in the future we feel the downside is priced in and the upside will take care of itself.

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

disruptive technology gaining acceptance

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