Member Q&As – ALVR, HLIT, and Voice Recognition Technology

Q) I know Alvarion (ALVR) is not a covered company for Next Inning but I have seen you comment about the trading range and option strategy. Any idea about the current quarter and is the “break even” call for ‘09 and $0.25 still reasonable for ‘10?

Also, the tape action in Harmonic (HLIT) remains a familiar pattern. The short positions have escalated noticeably ahead of the quarterly release and conference call. While your insight from the depressed quick trip below $4 was spot on, might there be enough positives from management to breakout the shares solidly above $6 or is the “sell the event” mentality too much to overcome?

A) I don’t have enough insight into ALVR to make a well-grounded call for the year, but my thinking is near-term looks good. My intent here is to continue the strategy I’ve shared in the past of buying on the deep dips, giving it time to surge and selling covered calls into the surge. Right now I think we are in the surge mode so I’ll be looking next for the opportunity to hedge if the surge continues.

I’ve never been more concerned about a HLIT earnings report than I am today. However, my concern is as much or more due to my personal situation as it is to anything else. I’ll get a preview out tomorrow, but it won’t have much of an update from what I wrote in our OEM State of Tech report.

Last year I reclassified HLIT as speculative versus strategic. The reason I made this move was primarily because I simply couldn’t firmly define if the company falling short of my expectations was due to market conditions or execution failures. However, in this case, since I couldn’t make that call, I had little choice but to reclassify. Due to the reclassification, I’ve also determined that my allocation to HLIT is too high. The combination of those two factors is the basis for my high level of concern.

I will be traveling to Silicon Valley the end of this week. When I set the trip up HLIT had not announced its earnings call. Fortunately, I planned ahead and scheduled my stop-over to coincide with the time HLIT would hold its conference call if it ended up scheduling as it did for this Thursday. Of course, to make this work, flights have to be on time. The message here is I will try to be on the call as I have been in the past and Robin has stated that if I buzz in with a question they will let me in early. However, this also means that I’ll have precious little time Thursday evening to pen a report so the follow up report to the call will be unusually brief.

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Q) Now that I am on board I do have a question. Not sure if you cover or have any insights into Comverse Technology (CMVT), but it seems that it might be righting a very ugly history with SEC issues. Any thoughts?

On a personal note, if you have any familiarity with voice to text technology (other than in relation to CMVT), what would your reaction be if a company was able to move up the accuracy rate, without human assistance, to about 99%? If such were the case do you think that would make it possible to move beyond the competition to such a degree that it would be a significant market leader?

A) I could go back to the early 1980’s in work I did with various companies working towards both voice synthesis and recognition. Yes, accuracy is a big deal and so is feedback. The problem, as I understand it, has and still is understanding dialect. Even though the Samsung Instinct, which Sprint worked closely on during the design process, is supposed to be optimized to understand a Midwestern dialect and I was once a DJ (I know how to modulate and control voice), it still has a very hard time in grasping voice commands with a high level of accuracy.

My thinking is we need both better technology (as you stated) and little applications that will create habit. To move from something as keyboard centric as a PC or even a handset is a mind thing that is tough to accomplish. But to move from other things like what we do in cars where voice is getting more traction is easier (mentally).

I think the long term is good, but my thinking is there has been so much development it will be difficult for any niche company to develop durable traction here. Even more complicating is picking the right one. Sure, there are press releases, but it could just as easily be one of maybe a 100 that we’ve never heard or any one of many very large companies that are also working it in the back rooms and don’t need to PR their every move.

Disclosure: At the time of this publication, out of the companies discussed herein, Paul McWilliams had long positions in ALVR and HLIT.

On a year-to-date basis, the Next Inning portfolio has returned 53% versus 23% for the S&P 500.

Tags: ALVR, CMVT, HLIT