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RBC Cuts Openwave Systems to Underperform

Analyst Mike Abramsky expects lowered growth, while margin expectations will compress Openwave's valuation multiple

RBC downgraded Openwave Systems (OPWV) to underperform from sector perform, after the company posted quarterly results.

Analyst Mike Abramsky says the company missed expectations, with earnings per share (EPS) at 18 cents adjusted for higher investment income and lower tax rate. He believes legacy growth is slowing, and offset by upfront multi-year license deals at favorable terms. He thinks organic growth will lag strong global handset shipment growth, while earnings before interest and taxes EBIT margin expansion will be limited, disappointing investors. He maintains his 76 cents fiscal year 2006 (ending June) EPS estimate, but cuts his $1.04 fiscal year 2007 estimate to 95 cents EPS. He expects lowered growth, while margin expectations will compress Openwave's valuation multiple. He also cut his $24 stock price target to $18.

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