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8-28-2006 HAUP - Hauppauge Digital Inc

CURRENT PRICE: $4.11
TYPE OF PLAY: EARNINGS GROWTH /SEASONALITY/VALUE
Hauppauge Digital, Inc. engages in the engineering, development, manufacture, and marketing of products for the personal computer and home entertainment markets. It also engages in subcontracting for manufacture and assembly of its products to independent third parties. HAUP became notable as a stock in December of 2005 when the release of a software product that enabled consumers to record television shows for playback on portable video players came to market. Within a few weeks the share price rose from the low $3's to over $7 per share. Since that time, the use of Apple's Video iPod has increased yet the price per share of HAUP has declined in large part, due to negative market sentiment regarding tech stocks. In the most recent quarter, HAUP reported that profits had more than doubled from $159,972 or 2 cents a share to a net profit of $380,341, or 4 cents a share. The company attributed this result to a rise in revenue from $19.4 million to $23.8 million. Commenting on the results, CEO Ken Plotkin stated, "Much of this growth is due to our recently introduced digital TV tuner receivers for PCs and notebooks, plus continued sales growth in TV receivers for Media Center PCs." As this has historically been considered the slow period of the year for the electronics sector, Hauppauge's results are particularly impressive. We believe that this marks an important turning point for the company and price per share of HAUP common stock.

Looking ahead, Mr. Plotkin further states, "Our R&D departments in New York and Taiwan have been teaming together to deliver an impressive series of new products, including two new multimode TV tuners, the triple TV format WinTV-HVR-3000 and the quadruple TV format WinTV-HVR-4000. The WinTV-HVR-4000 is Hauppauge's first product with high-definition satellite TV reception. In addition, two new dual tuner digital TV receivers, the WinTV-NOVA-T-500 and the new WinTV-NOVA-T-USB2 diversity digital TV receiver, were introduced. Together, the R&D team is scheduled to introduce 20 new products in fiscal 2006."

At the beginning of our fiscal year, the company restructured its European sales and marketing operations. This restructuring has started to pay off in this quarter with a turnaround in sales, and has also resulted in lower costs in our European operation which is reflected in lower Sales and Marketing expenses for this quarter. We see this as a big positive going forward.

Since their fiscal year ends in September, all of these products should be available for Christmas shoppers this year. In the 4th quarter last year they spent a lot of money on R/D developing these products. This led to a loss for the quarter and makes for an easy to beat comparable quarter going forward for year over year growth.

For the most recent nine-months Hauppauge is already showing 24c per share vs. 15c per share for fiscal year 2005. If the company maintained its previous PE ratio of ~27, the current price allowing for just the past 9 months would be over $6.40 per share. Technically, the 1 year chart displays a well defined support structure just under $4 with volume growing since the aforementioned earnings on the 11th of August. HAUP also has 7.3 million in cash and no debt.

LINKS FOR FURTHER READING:
HAUP Homepage
August 11th Earnings Release
SEC filings for HAUP
General HAUP statistics
To speak with HAUP investor relations, call: Jerry Tucciarone
tel: 631.434.1600 ext.306
jtucciarone@hauppauge.com