CSI dials the right number with analysts after clinching contact

May 25, 2003

Carolyn Leitch
Globe and Mai

Bay Street is gaining confidence in the prospects for CSI Wireless Inc. after the Calgary-based company received an $18-million purchase order for its fixed wireless telephones sold under the Motorola brand.

On Tuesday, CSI shares jumped 15 per cent to close at $3.05 on the Toronto Stock Exchange after the company announced that it received the order from Brightstar Corp., which distributes wireless phone products and services in Latin America . CSI management had been expecting the deal with the Miami-based company, which is a licensee of mobile phone giant Motorola Inc., but analysts say it shows CSI is winning new business.

CIBC World Markets Inc. analyst Spencer Churchill said his forecast had factored in a strong upturn in revenue in the second half of this year and he is pleased to see CSI deliver. In a note to clients, Mr. Churchill added that shipments for the Brightstar order are to start in the third quarter and be completed in the fourth.

Mr. Churchill rates CSI shares "sector outperformer" with a 12- to 18-month target price of $4.50.

CSI, which has sent its wireless and global positioning satellite systems technology to more than 40 countries, says consumers in Mexico are buying more of its phones.

The company's phones are based on a widely used technical standard in North and South America known as time division multiple access, or TDMA .

"CSI makes a version of the Motorola FX800t which is increasing consumer demand for fixed wireless TDMA telephones in Mexico ," said Stephen Verhoeff , president and chief executive officer of CSI Wireless.

The company says the outlook for orders is strong.

"We are experiencing a continuous increase in volume demand for our fixed wireless telephone," said Mr. Verhoeff when the company reported first-quarter financial results earlier this year.

He added that volumes shipped during the three months ended March 31 exceeded fourth-quarter volumes by 45 per cent.

The phones are "fixed" because they connect to standard AC electrical outlets rather than operate on batteries, and "wireless" because they rely on cellular rather than copper-wire landline networks. They are deployed primarily in developing countries to enable users to bypass landline networks, which are often scarce, unreliable or prohibitively expensive.

CSI also plans to launch fixed wireless phones based on the wireless standard known as the global system for mobile communications (GSM), which is widely used in Europe .

Mr. Churchill says the timing of the launch, which is expected in the third quarter, will have a significant impact on CSI's revenue. In the fourth quarter, for example, he estimates that sales of GSM phones will account for about 20 per cent of his $28-million sales forecast.

The CIBC analyst adds that CSI may sell the GSM phones under the Motorola brand, but no announcement has been made.

Ray Sharma, an analyst at GMP Securities Ltd., says the launch of the GSM phones will dramatically increase market opportunities for CSI. He notes that, together, TDMA and

GSM technology are used by about 80 per cent of global wireless subscribers.

Mr. Sharma adds that one of CSI's key competitors, Telular Corp., has warned that a delay in delivery of cellular radios will cause its revenue to fall below expectations in the third quarter.

"We have anticipated for some time that Telular has been losing share in specific markets to CSI." Mr. Sharma believes that Telular's supply problems have prompted carriers to shift business to CSI.

The analyst adds that he believes CSI will be able to expand profit with new product launches through the remainder of this year and into 2005. He says the stock trades at about 15 times his 2005 profit forecast of 20 cents a share, which he considers an attractive valuation given the growth prospects for the company.

Mr. Sharma rates CSI shares "buy" with a 12-month price target of $5.

Pacific International Securities Inc. analyst Glen Tracey rates CSI one of his "top picks" for the technology sector in the third quarter.

Mr. Tracey says an agreement with Motorola to put its brand and worldwide distribution power behind CSI's GSM phones -- which he hopes will happen some time in the third quarter -- would provide an extremely large marketing opportunity.

Meanwhile, Mr. Tracey says, CSI continues to see increasing demand for its highly profitable products based on global positioning systems technology, and the company's balance sheet is solid.

Mr. Tracey estimates that CSI will report profit of 17 cents a share on revenue of $74.1-million this year. He is looking for profit of 22 cents a share on revenue of $94-million in 2005.

Mr. Tracey has set a 12-month price target of $5 for the shares with a "buy" recommendation and a "speculative risk" rating.

CSI Wireless

The company is a designer and manufacturer of global positioning system and wireless products.


Head office: Calgary

Telephone: 403-259-3311

Web site: http://www.csi-wireless.com

TSX symbol: CSY

Ownership: Widely held

Share values

Trailing earnings per share: 4 cents

52-week intraday high: $3.68

52-week intraday low: $1.41

Last close: $3.02

Change from previous: -5 cents

Market cap. $million: $32.7

1-year total return: 98%

5-year average annual return: 31%