Problems with a new supplier dragged hand-held computer specialist i-mate into losses last year but chief executive Jim Morrison says the group can break on through in the second half with a range of proprietary products.

Troubles emerged at Glasgow-headquartered i-mate, which designs and develops software, and provides after-sales support for ‘smartphones’ operating on a Windows platform, when it decided to change handset suppliers. Unfortunately the inconsistent quality of products from the first of these suppliers resulted in a product recall that Morrison estimates cost the company ‘in the region of £15m to £20m’.

The impact on results for the year to March was that the previous year’s US$22.5m (£11.3m) profit was turned into a $2.1m pre-tax loss on sales down 5% to $195m. The errant supplier has since been dumped and Morrison believes the experience might even have been constructive, with a post year-end restructuring streamlining the marketing strategy and slashing the workforce by 25%.

An agreement with its previous manufacturer that prevented i-mate selling directly into Europe, forcing it to concentrate on the Middle and Far East, is now defunct. A major distributor has just been signed to begin to exploit this and Morrison predicts that ‘within a year of the new products coming out, Europe could become our largest market’. Moreover, he is extremely bullish about a suite of proprietary products poised for launch this summer.

Cazenove analyst Will Wyman forecasts declining revenues this year but remains enthusiastic about the company’s model. Shares in i-mate have crumpled from their 317p high in January 2006 as uncertainty has dogged the company. But, with £30m net cash, closer marketing links with Microsoft and a strong management team poised to enter Europe with a suite of new products, there is a prime opportunity to take a speculative punt on the shares.

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