Tuesday, October 31, 2006

Nierenberg Investment Raises Stake in RadiSys (RSYS) to 11.1%, Still Thinks Stock Dramatically Undervalued

In an amended 13D filing on RadiSys Corp. (Nasdaq: RSYS), Nierenberg Investment disclosed an 11.1% stake (2.37 million shares) in the company. This is up from the 2.06 million share stake the firm disclosed in a quarterly filing with regulators.

The firm disclosed the last time they bought a large block of RSYS was one year ago, on October 28, 2005, when RSYS' fourth quarter guidance caused the share price to swoon. The firm bought 300,000 more shares on October 27, 2006.

Quoting from their amended 13D, filed November 9, 2005, which they said remains true, the firm said:

"RSYS is a dramatically undervalued growth company which possesses a fortress balance sheet, an impressive board of directors, a strong management team, and a business model which generates a stunning amount of positive cash flow.

The stock market has trouble valuing this company. Because RSYS is a micro-cap, not many analysts trouble to understand it. Moreover, RSYS' business, on the surface, is not easy for some people to understand. What "advanced embedded computing" means is not intuitively obvious. There are few, if any, pure play public companies with which to compare RSYS. RSYS' revenues are highly concentrated, with its top five customers generating 72% of sales in the most recent quarter. This means that quarterly revenues are inherently lumpy.

Wall Street's obsession with linear short term results causes it to undervalue dramatically the fundamental shareholder value which is being created at RSYS. Those who look out three to five years, like venture capitalists do, see value in a very different way than those who only look out three months."

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