Alvarion Cuts Jobs for Tough Times Ahead

WiMax vendor Alvarion Technologies Ltd. (Nasdaq: ALVR) will cut 11 percent of its 1,000 employees by the end of this year in an effort to stay profitable throughout 2009 and weather the global economic slowdown.

The company will also cut management salaries and introduce other cost saving initiatives, which altogether, are expected to result in annual cost of goods and operating expense savings of around $15 million. The changes will cost $3 million in a one-time charge in the fourth quarter.

Alvarion is clearly preparing for a tough 2009 in WiMax as the worsening macro-economic situation forces operators to rethink plans for wireless broadband rollouts.

"We see lengthening sales cycles, and we remain cautious about the potential effect of the economic climate on WiMax-related spending decisions as we move through next year,” said president and CEO Tzvika Friedman, in a press statement.

On a call with analysts today, Friedman said the uncertainty for 2009 stems from a combination of new projects being delayed, existing customers slowing down deployments, and longer sales cycles. Greenfield WiMax deployments are particularly challenging because of the difficulty in raising funds, he explained.

"The spreading global recession cannot be ignored," he said. "We're seeing capex reductions from various operators and sales cycles are lengthening in some cases. We have to balance the need to prepare for a difficult and uncertain environment with the need to find a way to achieve profitable growth anyway."

But Friedman stressed that Alvarion has not had any "order cancellations or push-outs" in the fourth quarter and that, apart from the one-time $3 million charge, the company's fourth quarter guidance remains unchanged.

He also noted that Alvarion is heading into the slowdown with more than $100 million worth of back orders and that the "quality of the order book is high."

Friedman also said that its new WiMax partner Nortel Networks Ltd. was not able to bring in much business given the Canadian vendor's own turmoil. (See Nortel Flunks WiMax.)

"It's difficult for [Nortel] to bring us deals," said Friedman. "Regarding risk [associated with Nortel], it's a strong company. They have good management and I hope they'll be able to get out of this situation."

Alvarion does not provide any guidance for next year because the market situations are too uncertain to make a reliable forecast. But Friedman said Alvarion's operating plan for next year allows for revenues to grow at most by 15 percent compared to 2008, "assuming business conditions will support such growth," even at the new lower operating cost base.

All of the cost reductions announced today will be implemented before the end of the year. The job cuts will come from all geographies where the company operates and affect all job functions.

— Michelle Donegan, European Editor, Unstrung