Image Sensing Systems ( Nasdaq - ISNS ) -- Follow-up Report

Image Sensing Systems (ISNS $13.50) appears on track to report excellent on target Q4 results.  The company is the leading manufacturer of machine vision systems used in traffic management applications.  Cameras are mounted at intersections.  Images are fed into onboard computers, which dynamically change the lights to keep the cars moving efficiently.  Besides being more intelligent, machine machine systems cost less than conventional underground sensors ("loops").  Those products require the road to be torn up when they're originally installed or replaced.  Image Sensing's technology also is used on highways and in tunnels to report accidents, fires, and other emergencies. 

Results have stalled over the past two years due to budget pressures.  State and local governments account for most of the company's orders.  Image Sensing has responded by driving down costs and prices, improving performance, and gaining market share.  Two years ago Image Sensing acquired a maker of radar detectors, which work better than machine vision in poor lighting or bad weather conditions.  This year the company plans to launch a combination system that employs both radar and machine vision.  Image Sensing also purchased a license plate reading technology in 2010.  That remains a niche market at present but could be integrated as a standard feature over time.  Police and homeland security funding could supplement highway department outlays, helping things from a budgetary standpoint.

Foreign business varies from period to period.  But the long term trend is higher.  Image Sensing currently is strongest in the Far East and Eastern Europe.  Marketing efforts have been expanded in those areas and could lay the groundwork for accelerating gains in future periods.  For now, we estimate that financial performance will remain solid but unspectacular.  Income appears headed towards $.90 a share in 2010, down from $1.15 the year before.  Next year a rebound to $1.35 is possible as the new products kick in, international volume keeps rising, and overall U.S. demand improves modestly.

( Click on Table to Enlarge. )