A year or so ago, when I last looked at InFocus (NASDAQ:INFS), this maker of projectors for consumer and business applications was struggling with declining gross margins and sky-high inventories. Has the business improved at all since then?

Gross margins for the quarter ending March 31 rose to 14.9%, up from both the previous quarter (12%) and the previous year (7.3%). That's good news. Revenues have declined, but this has been partly due to InFocus exiting some markets and de-emphasizing OEM (original equipment manufacturer) sales. Impressively, inventories have dropped dramatically from $127 million a year ago to just $44 million at the end of March 2006. That inventory reduction has certainly helped the gross margins. Projectors continually fall in price, so you want to get them out the door, rather than have them collecting dust on a shelf somewhere.

Unfortunately, business in the current quarter doesn't look so hot. InFocus expects revenue to tick down from the $112 million level it achieved for the quarter that ended in March, although it expects that gross margins will improve slightly. The disappointing quarter is due to weak sales of an entry-level consumer product in both Europe and the United States and later-than-expected shipments of a new product.

I have to confess that I don't know whether a turnaround is likely for InFocus. The market is skeptical, too -- this company has $78 million in cash and marketable securities, but a market cap of just $112 million.

Obviously, the cash hoard helps, but the main problem with this business is that the competition is intense. InFocus does make good projectors, but so do many other companies, and barriers to entry are nil. Even companies such as Dell (NASDAQ:DELL) and Hewlett-Packard (NYSE:HPQ) are selling projectors these days. Furthermore, I'll bet it isn't uncommon for people to run out to Best Buy (NYSE:BBY) intending to buy a projector, but end up taking home an LCD or plasma TV instead. As a result, I think that most of us would be best off keeping our distance from these shares.

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Fool contributor Dan Bloom doesn't own shares of any company mentioned in this article.