"Feel the Profits"

01/13/2006 12:00 am EST


Karim Rahemtulla

Options Strategist, The Oxford Club

Agora Publishing puts out some of the most exciting investment advice around, and the top speculative pick from editor Karim Rahemtulla is no exception. Here, he looks at a play in hapticsthe science of feedback through feel.

"You can literally ‘feel the profits’ at Immersion Corporation (IMMR NASDAQ). Haptics is the science of providing feedback to the user through ‘feel.’ In the case of Immersion, it has developed technology that allows users to feel vibrating sensations when they use a device. This is not like your phone vibrations, but vibrations that are synchronized to movements and touch.

"The best example is when you are playing a car-racing video game. When the car hits a bump, wall, or another car, the sensation of that ‘hit’ is sent through the controllers into your hands so you can literally feel what has just happened. Or, in medical technology when a user is practicing on a simulator, the Haptics allow the user to feel his way through a procedure by replicating what it would feel like when operating in a real situation.

"Immersion sued both Microsoft and Sony. Microsoft settled in 2003 by paying Immersion a lump sum payment of $25 million and investing in the company, as well. Sony continued to fight it out. In September 2004, the courts ruled that Sony infringed and had to pay IMMR over $100 million and stop selling its PlayStations in the US. The PlayStation and associated games generated the bulk of Sony’s profits last year a number in the hundreds of millions.

"Sony has appealed the ruling and was forced to post a $102 million bond during the appeal. In addition, the company was ordered to pay Immersion Corp. royalties on the products that it is selling and products that are sold during the period of infringement as decided by the courts. After the Sony ruling, several smaller companies immediately signed license agreements with Immersion to avoid a court battle that they would most likely lose as well.

"Right now, the shares are trading at $6.55 per sharea market cap of $160 million. This year the company should do about $30 million in saleswithout counting the potential revenues from Sony. If the Sony appeal were to failas now appears likely the company would take in over $4 per share in cash plus higher revenues from a negotiated royalty agreement. The court has ordered Sony to pay IMMR royalties during the appeals process of 1.37% on every unit, controller and game sold that uses IMMR’s infringed technology, and has rebuffed every argument Sony has made to date. What action should speculators take? Buy IMMR."

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