Lantronix Bucks Industry Trend With Positive Outlook

Unlike most technology companies, Lantronix Inc. seems to be benefiting from the slowing economy.

The Irvine maker of network device servers expects to report a 40% gain in third-quarter revenue Wednesday, and Chief Financial Officer Steve Cotton says the economic slowdown is actually helping business.

Lantronix is experiencing stronger demand than anticipated as businesses scramble for products that can cheaply hook up devices to Internet-enabled networks.

On Wednesday, the company expects to post third-quarter earnings of 3 cents to 4 cents a share on revenue of more than $14.5 million, Cotton said. That’s well above the penny-a-share loss a year ago on $10.3 million in revenue.

Lantronix, which went public last August, offers several lines of device servers, from its signature external boxes to embedded chips, with the vision that, someday, all devices, appliances, equipment and systems will communicate together.

These servers allow tools such as bar code scanners, elevators and factory equipment to interface with computer networks. That allows companies to gain more control over their operations.

At a time when so many companies are feeling the pinch on their wallets and laying off employees, Lantronix is boasting that its products reduce the number of workers needed to operate technical equipment; companies can expect a payback in 60 to 90 days, Cotton said.

“Rather than having a number of people intervening, two or three operators can manage a factory floor from 100 miles away, giving management tighter control over their cost side,” he added.

Lantronix expects its embedded device server segment, which accounts for around 25% to 30% of the company’s business, to grow to about 50% of the business within the next 18 months.

Indeed, the company is sparing no effort promoting the chips. On its Internet site, Lantronix introduces people to its latest fingertip sized product, DSTni, with a headline that plays on the product’s name: “Meet Your Destiny.” The embedded chips perform the same function as the external device servers, but save on space.

Cotton also sees revenue getting a boost in fiscal 2002 from a number of key acquisitions Lantronix has made recently.

On April 10, Lantronix announced an agreement to acquire Lightwave Communications Inc. for an undisclosed amount of cash and stock. The company expects the deal to raise operating earnings by 4 cents to 5 cents a share for the fiscal year ending June 30, 2002.

In February, Lantronix reported that it made an investment in privately held software provider Premise Systems Inc.

Cotton said Lantronix has already bought 19.9% of the company and eventually will have the ability to buy the entire company.

“Premise has significant upside and we see the potential for it to be a $200-million to $300-million business for us,” he said.

Cotton also said he’s comfortable with financial estimates for the fourth quarter and current fiscal year.

Lantronix expects to earn between 3 cents and 4 cents a share in the fourth quarter on revenue of between $16 million to $16.5 million. For the fiscal year, the company anticipates earnings of 8 cents to 10 cents a share on revenue of about $54 million.

But while Lantronix is celebrating, its stock price has been under pressure. The company made its initial public offering at $10 last August. The stock moved up to $12.38 late that month, but slumped in March to a low of $3.78. It has rallied a bit since then, closing Friday at $7.67, off 8 cents a share, in Nasdaq trading.

Cotton, however, was not fazed by the stock’s performance.

“We are continuing to grow in a recessionary environment,” he said. “Not all companies are caught up in this milieu and we’re an exceptional value.”