Technology (Computer Based Systems)

Corporate Finance


The reported identified Computer Based Systems industry in the Technology sector as the focus industry. In the industry, there were six firms that were identified with four of them being public firms. The focus of the report was on the four public firms. An overview of the four individual firms indicated that Silver Springs Network was the largest firm by market capitalization followed by: Daktronics, RadiSys, and Concurrent respectively. The most notable trend is that the four firms are not direct competitors with each focusing on different segments. The level of competition in these segments is quite high but with Silver Springs Networks and Daktronics having relatively high market shares in their respective areas of focus. There is low impact of seasonality with respect to demand except with regard to Daktronics which generates more business during holidays’ season and sporting season. With the exception of Concurrent, all the other firms have high cost structures implying low gross margins. All the firms are except to some degree of government regulation most in particular the firms that are invested in hardware manufacturing. They are expected to report based on GAAP principles with frequency dictated by the regulator using presenting quarterly reports in predefined format. There is strong growth in demand but the level of competition is also heightening. It is difficult to predict future growth trends of individual firms and with the exception of Daktronics, all the firms have continued to post net losses in the past few fiscal years which reduces their investment attractiveness.

Industry Group Comparison: Technology (Computer Based Systems)

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1.      Introduction

1.1  Industry/Companies Overview: Computer Based Systems

An industry “is a group of firms producing products that are close substitutes” (Hitt, Ireland, & Hoskisson, 2011, p.50) and they strongly influence each other competitively. The industry has more direct impact on a firm’s financial performance and strategic competitiveness. There are six firms forming the Computer Based Systems industry in the Technology sector.

The six firms are: Silver Springs Networks, Inc, SSNI; Daktronics Inc., DAKT; Concurrent Computer Corporation, CCUR; RadiSys Corporation, RSYS; Lexmark International, Inc, LXK; and Ruckus Wireless Inc, RKUS (Yahoo Finance, 2017). There are two private firms among the six, which are Lexmark International, Inc and Ruckus Wireless Inc.

Silver Springs Networks, Inc is the largest of the listed firms with a market capitalization of $671.7 million (Yahoo Finance, 2017). It focuses on “creating, building, and successfully deploying large scale network and solutions enabling the Internet of Things or IoT, for critical infrastructure” (Silver Springs Networks, 2017, p.1).

Daktronics, Inc is a leading manufacturer of electronic scoreboards, large screen video displays for commercial, transport, & sporting applications, and programmable display systems (Daktronics, 2017, p.1). It is the second largest of the four firms with market capitalization at $415.4 million (Yahoo Finance, 2017). The two remaining firms are substantially smaller.

Concurrent Computer Corporation and RadiSys Corporation have market capitalization of $61.8 million and $59.7 million respectively (Yahoo Finance, 2017). RadiSys provides service acceleration systems/applications (RadiSys, 2017, p.3) while Concurrent develops applications and software solutions in Linux and storage technologies (Concurrent. 2016, p.1).

2.      Industry Comparative Factors

2.1  Degree of Competition in the Industry

The structure of the industry is fundamental in driving competition as well as profitability irrespective of whether it is mature or emerging, unregulated or regulated (Porter, 2008). The scope of firms in the industry with respect to products offered is expansive. Firms in Computer Based Systems industry are diverse in products and services offered.

Silver Springs Network has strong focus on energy infrastructure currently holding about 31% of Electric Advanced Metering (EMA) devices in the United States (Seeking Alpha, 2017a). It competed directly with Itron in providing smart grid solutions with at least two-thirds of new metering contracts in the United States for 2017 (St. John, 2016).

In addition to providing energy infrastructure in EMA devices, the firm also provides Software as a Service (SaaS) solutions in managing energy networks. Daktronics has a different target market with electronic displays competing with conventional electronics firms like LSI Industries Inc., Panasonic Corporation of North America, and Mitsubishi Electric Corporation.

The firm controls approximately 25% of the global digital displays market (Figure 1, Appendix) and above 50% in the United States (Seeking Alpha, 2017b). It is benefiting from the increasing prevalence of live events, growth of digital advertising and demand for electronic signage. Daktronics has subsidiaries in Asian, European, and Middle-East markets.

 RadiSys focuses on hardware and software solutions for the telecommunications, public safety, aerospace, and defense industries. It is a fairly small firm with $212.4 million in fiscal 2016 revenues and with five of the largest customers accounting for 69.6% of consolidated revenues with fairly excellent reputation (RadiSys, 2017).

Concurrent offers solutions based on Linux operating system that is targeted at storing and managing digital content on the network (Concurrent, 2016). The firm competes with the likes of Cisco Systems, Seachange International, and Arris Group. With revenue totaling $61.1 million in fiscal 2016 (Concurrent, 2016), it is a relatively small player.  

2.2  Supply/Demand Dynamics for the Industry’s Products

The four firms operate in businesses that are targeted at specific markets. Concurrent operates in a market where demand is fast growing with a projected CAGR of 36.7% for Software-Defined Storage (SDS) through 2019 and rapid increase in internet-based subscription services for video services growing at annual rate of 8.0% (Concurrent, 2016).

Despite the strong demand, the level of competition is strong with large technology firms offering alternatives which impacted revenue at Concurrent in fiscal 2016. In addition to direct competitors, Concurrent also competes with firms like Apple Inc., and IBM, Hewlett Packard. RadiSys provides radical solutions in a highly competitive market.

It leverages on contract manufacturers for their products and it exposes them to the possibility that they might engage in forward integration. Demand is also limited to larger Tier 1 service providers in the telecommunications industry. Some of these providers can directly engage in developing some of the products that are offered by the firm.

In digital displays market, the number of service providers primarily the leading electronics equipment firms has the financial capabilities to target the market. The growing demand for live events has implication for diversifying competitors. There is a strong possibility that large electronics equipment firms might focus more on the segment.

Demand for EMAs and other energy management solutions are growing rapidly with the need for efficient utilization of energy assets becoming increasingly critical. It is niche market that is growing fast which limits competition. The uptake in new orders by Silver Springs Network in fiscal 2017 indicates robust demand (St. John, 2016).     

2.3  Industry Cost Structure

There is varying costs among the four firms in the industry. Concurrent had a gross margin of 59.3% in fiscal 2016; it implies that direct costs accounted for 41.7% of total revenue (Concurrent, 2016). RadiSys had a gross margin of 26.4% which implied that total costs accounted for 73.6% of total revenue in fiscal 2016 (RadiSys, 2017).

In the energy management segment, Silver Springs Networks had a gross margin of 44.4% with implied cost of sales of 55.6% of total revenues (Silver Springs Networks, 2017). Daktronics had a gross margin of 23.9% which implied a cost margin of 76.1% (Daktronics, 2017). The cost structure is generally high for firms that manufacture equipment.

The average cost margin of the four firms was approximately 61.8% implying an average gross margin of 38.2%. Aside from Concurrent that mostly offers software solutions, the remaining firms offer a mixture of hardware and software solutions. The firms in the industry that have greater hardware focus are the ones that have the highest relative cost of sales.

2.4  Exposure to the Business Cycle

The business environment with respect to Computer Based Systems is not subject to seasonality. However, significant business is mostly closed at the end of quarters for firms like Concurrent. Firms that have stronger focus on hardware like Silver Springs Networks generally bid for the large contracts and the process involve competitive bidding.

They have some order backlog that they would need to fulfill within a time period. Silver Springs Networks has won several large contracts into 2017 from the United States and internationally (St. John, 2017). Generally, seasonality is not an important factor for the industry players but is dependent on the purchasing cycles of the larger customers.

A firm like RadiSys which has great exposure to a few large firms relies strongly on the purchasing cycles to close deals for the subsequent fiscal years. The firms book orders in advance which ensure that there is stability in revenue prediction for the upcoming fiscal year. Out of the firms, Daktronics has the largest exposure to seasonality with demand in holidays.

2.5  Degree of Government Regulation – Favorable or Not

The firms that have greater regulations are Daktronics, Silver Springs Network, and Concurrent which are required by law to meet certain quality standards. RadiSys has a more favorable operating environment since it works directly with partners. All industry players require protection of intellectual property which is critical to their operations.

Silver Springs Network relies on the providers of energy which is a highly regulated industry with regulation that directly impacts it being with respect to radio frequencies. In addition, these firms offer the products and services within and outside the United States which exposes them to varying regulations in the different countries of operations.  

2.6  Relative Financial Norms and Standards

Some of the industry players like Silver Springs Networks and RadiSys book order in advance.  Orders that are fulfilled are then represented in the financial reports with deferred orders also explicitly stated. Essentially, they can only book profits on orders that have been fulfilled and are the unfulfilled remain as deferred orders in the course of the fiscal year.

They have to report quarterly and annual results that are consistent with GAAP and non-GAAP (IFRS) standards. Like most listed firms in the United States, they provided quarterly, Form 10-Qs and annual, Form 10-Ks which contain similar information that allows for comparison of performances over the previous years and consistency in presentation format.

3.      Justification and Conclusion

3.1  Justification for Industry Selection

The industry (Computer Based System) is diverse in the products and services that are offered. Demand for computer-related products and services are growing relatively fast based on CAGRs of some of the segments like SDS. Investing in the industry offers exposure to novel firms that are expanding niche services to a more global scale.

Their potential is quite strong considering that the four firms that were identified as part of the industry have strong presence in their individual markets. The challenge for investors is the unpredictability in their financial performances. All the firms posted net losses in the previous two fiscal years with the exception of Daktronics which has been profitable.

There is a stronger push towards incorporation of some of the products offered by firms such as EMAs with the rapid of order backlog for Silver Springs Networks. Increasing drive towards modernization of the energy infrastructure provides strong potential. In the United States, there is strong likelihood of massive infrastructure investment by the government.

It is highly likely that some funding will be available in 2018 which could spur demand for services that are offered by the industry players like Daktronics for digital signage. It could also spur modernizing of services by other firms that directly benefit the industry players like the telecommunications industry which is continually upgrading their networks.

3.2  Conclusion

The financial performances of the firms are mixed with respect to cost margins. It is prudent to consider specific firms like Daktronics which has maintained relative consistency in profitability. It has been profitable in the past five fiscal years while RadiSys, Silver Springs Network, and Concurrent have made losses during that period.

Even with growing demand, the cost of acquiring new business and capacity to fulfill new orders is constrained by their financial limitations. The players in the industry are susceptible to forward integration by large technology firms and customers that would seek to develop their own custom solutions that would provide stronger competition for them.

Niche players that focus on specific areas like RadiSys and Concurrent can be interesting investments particularly if they are likely to become acquisition targets. They are small players that could become targets by larger competitors and this would present better opportunities for investors. However, the general financial performance in the industry has been mixed and lower.      


Concurrent. (2016). Form 10-K for the Fiscal Year Ended June 30, 2016. Duluth, GA: Concurrent Computer Corporation.

Daktronics. (2017). Form 10-K for the Fiscal Year Ended April 29, 2017. Brookings, SD: Daktronics, Inc.

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2011). Strategic Management: Competitiveness and Globalization: Concepts (9th Ed.). Mason, OH: South-Western Cengage Learning.

Porter, M. E. (2008). The Five Competitive Forces that Shape Strategy. Harvard Business Review, 86 (1), pp. 79 – 93.

RadiSys (2017). Form 10-K for the Fiscal Year Ended December 31, 2016. Hillsboro, OR: RadiSys Corporation.

Seeking Alpha. (2017a). Silver Spring Networks: A Potential Multi-Bagger in the High Growth Smart Grid Market. Retrieved 26 August 2017 from

Seeking Alpha. (2017b). Daktronics Well Positioned To Benefit from Increasing Global Infrastructure Spending. Retrieved 26 August 2017 from

Silver Springs Networks. (2017). Form 10-K for the Fiscal Year Ended: December 31, 2016. San Jose, CA: Silver Springs Networks, Inc.

St. John, J. (2016). Silver Spring and Itron Grow Market Share in Smart Meters and Beyond. Retrieved 26 August 2017 from

Yahoo Finance. (2017). Computer Based Systems. Retrieved 26 August 2017 from



Figure 1: Global Digital Displays Market Share: 2015

Source: Seeking Alpha (2017b)