Value Find: Lantronix, Inc.

A recent changing of the guard in management and the board of directors of a little-followed microcap network device play suggests an emerging value situation worth investigating.

Irvine, Calif.-based Lantronix, Inc. (Nasdaq:LTRX) has remained a story of unfulfilled potential for its shareholders in recent years. The $56 million market capitalization company is a leading player in the emerging device networking market. Lantronix’s secure communication solutions provide remote access, management and control of virtually any electronic device via the Internet. The company’s products are used in markets ranging from security, industrial and building automation to medical, financial, government, consumers electronics and appliances.

While the long-term future of the device networking market looks bright, a world here-and-now filled with interconnected devices can’t come soon enough for Lantronix. The company’s annual sales have nudged up only modestly over the past few years, to $55.3 million in fiscal 2007 from $49 million in fiscal 2003. Losses have been reduced over this stretch, but sustained profitability has still proven elusive. This situation could be about to change. Last month, the company announced the appointment of Jerry Chase as the company’s new chief executive. The hiring of Chase follows a year in which the company has also made significant changes to its board of directors. Four of Lantronix’s five directors have joined the board over the past year.

Chase joins Lantronix following a successful previous turnaround stint. From 2004 to 2007, Chase was CEO of digital video equipment maker Terayon Communications. Under Chase, Terayon sold two of its three unprofitable units and grew revenue in its remaining division to $60 million from $24 million. In April 2007, Terayon was acquired by Motorola, Inc. (NYSE:MOT). Chase’s compensation package with Lantronix includes accelerated vesting of a portion of his stock options depending on the stock’s performance, beginning with Lantronix’s share price staying above the $1.50 level on a sustained basis. Lantronix closed at $0.93 a share on Monday, around the middle of a 52-week range of $0.47 to $1.72.

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