The Nation on Smith Micro Shares Punished for Honesty

Smith Micro Software (NASDAQ:SMSI) shares were punished yesterday by a huge -25% selloff for lowering its forward revenue numbers. Smith Micro shares are picking themselves off the ground in a bloody mess up 2% for a TGIF trading session.  SMSI had a wipe out yesterday of $64 million in market cap. Could the selloff be a bit too much? Since when is being honest and unsure worth 1/4 of your company's share price?  Apparently investors could not handle the truth.

(WallStNation.com - Posted Yesterday) Smith Micro makes software for the wireless market, the company posted a profit of $2 million, or 6 cents per share, compared with a year-ago loss of $1.6 million, or 5 cents per share. Smith Micro reported lower stock-based compensation costs in its latest quarter, and paid $2 million less in taxes. That was the good news.

THE NOT SO GOOD NEWS
The company said its third-quarter revenue did not live up to its own expectations because of economic pressure. Saying it is unsure how much revenue it will get in the fourth quarter, Smith Micro Software lowered its full-year revenue forecast to a range of $105 million to $110 million from a prior outlook of $110 million to $115 million.

Analysts were expecting $111.3 million in revenue, on average so is it really worth a 26% drop in share price?

The company was being honest, they are 'unsure' during these very uncertain times at best.

Here's what CEO Bill Smith regarding the company's future:
"Before I open the call for questions, I would like to address our revised revenue guidance for fiscal the year 2009. As Andy stated in his remarks, several factors have impacted our revenue guidance, most particularly the flat economic climate which is impacting Smith Micro and causing our customers to manage inventory more tightly and deploy new initiatives with more caution.

Despite this operating environment, we continue to grow as represented by our record third quarter revenue results, and our bottom-line performance is extremely healthy."

Smith Micro is still profitable and is going to rake in at least $100 million this year, that's not so bad is it? Bill Smith didn't say the company is about to crash and burn like the Hindenburg.

You make the call, but we'll be adding this stock to our watch list. Be smart, let the dust settle as this stock has been falling since the start of November. If Smith Micro can make a comeback, there's plenty of time to get back on this horse.

Disclaimer: No positions in SMSI.

SOURCE: http://wallstnation.com/smithmirco-11052009