A large Silicon Storage Technology (NDAQ:SSTI) shareholder believes the company's shares are "significantly undervalued" and threatened to take a more "proactive approach" if the company didn't take action to close the valuation gap, according to a Schedule 13D filing with the SEC.

Riley Investment Management, which owns a 4.9% stake in the company, said in a letter to the board that it believes the the company's $168 million in cash, $100 million in equity investments, $35 million per year licensing revenues and the company's NOR flash business and robust pipeline of non-commodity products are worth well in excess of the market's currently assigned $321 million market cap.

"[Our] desire, at this point in time, is to work assiduously and aggressively with the current management team on behalf of all shareholders," said the hedge fund in a statement. "[Our] sincere hope is that management and the Board of Directors share its sense of urgency. If they do not, it will force RIM to take a more proactive approach, one which will include, among other things, the nomination of new directors."

Interestingly, Riley noted that if cash and investments were subtracted from the company's market capitalization, the resulting $60 million is all the value the market is currently assigning to SST's NOR flash business, product pipeline and licensing revenue streams. This is low by anyone's measure but the company has done very little to correct the problem.

In the end, Riley Investment Management is a well-capitalized hedge fund with a great track record in activist situations. Shares today moved up over 2% in support of the suggestions. If the group can successfully force the company to make changes, it could mean significant value being unlocked for shareholders. Combined, these factors make SSTI a stock worth watching!

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