Alvarion Q2 Revenue Falls

Revenue for Q2 reached $47M, down 4% from $48.8M in 2Q04, resulting in net loss of $3.6M compared with net income of $2.5M

August 3, 2005

5 Min Read

TEL AVIV, Israel -- Alvarion Ltd. (NASDAQ:ALVR), the leading provider of wireless broadband solutions worldwide, today announced financial results for the second quarter ended June 30, 2005.

Revenue for the second quarter reached $47.0 million, down 18% sequentially from $57.2 million in the first quarter of 2005, and down 4% from $48.8 million in the second quarter of 2004. The decline in revenue resulted from lower sales to a major customer, and delayed orders and postponed revenue recognition in non-WiMAX product lines. On a GAAP basis, the lower-than-expected level of revenue caused the company to report a net loss of ($3.6) million, or ($0.06) per share. This compares with net income of $0.4 million, or $0.01 per share in Q1 and $2.5 million, or $0.04 per diluted share in the second quarter of 2004.

Excluding amortization of acquired intangibles and deferred stock compensation of an aggregate of $1.1 million and $0.7 million in the second quarter of 2005 and 2004, respectively, and amortization of intangibles and deferred stock compensation as well as acquisition related expenses totaling $2.5 million in Q1 2005, on a non-GAAP basis, Q2 net loss was ($2.5) million, or ($0.04) per share, compared with a net profit of $2.8 million, or $0.04 per diluted share in the prior quarter, and a non GAAP net profit of $3.2 million, or $0.05 per diluted share in Q2 of 2004. See attached table showing the reconciliation of GAAP to non-GAAP figures.

Gross margin increased to a record 46.5% in Q2 of 2005 due to a favorable product mix. Excluding amortizations mentioned above, operating expenses increased slightly to $25.0 million or 53% of revenue, on a non- GAAP basis, due primarily to continued investment, mainly in research and development in connection with the cellular mobile and WiMAX initiatives.

Comments of Management

"Despite a challenging quarter, BreezeMAX revenue continued to grow in line with our original expectations and we achieved several important goals," said Zvi Slonimsky, CEO of Alvarion. "We continued to expand the number of WiMAX trials and evaluations and believe we are engaged in more WiMAX activity than any other vendor. In addition to expanded trials, in Q2 we began to see additional orders for commercial deployments of the BreezeMAX platform in several regions of the world. This is significant beyond the immediate contribution to revenue because these deployments will afford us valuable field experience that will help us maintain our market lead."

"We are on track with a number of new product introductions. In April, Alvarion was the first vendor to demonstrate a working outdoor CPE based on the Intel chip. Later in the quarter, we also demonstrated our indoor self-install CPE, also based on the Intel chip, at several industry events. We also announced the expansion of the BreezeMAX platform to include 2.3 GHz and 2.5 GHz bands for North America. In addition, we introduced enhancements to some of our non-WiMAX products including the MPOTS extension of our multi-service solution, significantly improving the price per line for carriers."

"The integration of the interWAVE business is progressing according to plan, and we are continuing to expand our pipeline of new opportunities. As these opportunities move through the normal sales cycle, we expect to see better traction and higher revenues during the second half of the year for this business."

Commenting on the quarter, Mr. Slonimsky said, "We have always expected a relatively slow first half of 2005, due to the transition of our wireless DSL products to a WiMAX standard-based platform. Our original guidance, particularly for Q2, assumed some displacement of proprietary products and longer sales cycles as customers considered moving to BreezeMAX. After a detailed analysis of actual Q2 results, we confirmed that the reasons for the revenue delays in our non-WiMAX products were indeed customer-specific, but we also identified an underlying hesitation on the part of customers for our TDM voice-oriented products. This was something we had not anticipated."

"Looking ahead to the second half of the year," Slonimsky continued, "We continue to expect growth from our wireless DSL solutions, both our current advanced products for the unlicensed bands and WiMAX-ready products in the licensed bands. However, our revised outlook assumes that this growth will be less robust than we originally expected due to longer-than-expected sales cycles and potential further delays in allocating licensed spectrum in certain key regions. Our second half expectations are also tempered by the likely continuation of weakness in TDM voice-oriented solutions as customers evaluate potential WiMAX alternatives. We continue to expect improving business momentum in our cellular mobile business in the second half of the year but, as was the case in Q2, we may not recognize revenue in the same quarter as we ship the equipment. Finally, for some of the same reasons just cited, we have excluded from our guidance any substantial revenue from a major customer that accounted for a significant amount of our revenue in 2004. We continue to believe that there is a good possibility of further orders from this customer in the second half and, therefore, we believe there is some potential upside to our revised outlook."

Third Quarter Guidance

The Company's revenue guidance for Q3 2005 is $43 million to $48 million. At this revenue range, per share results are expected to range between a loss of 6 and 10 cents per share, while the non-GAAP loss per share, which excludes amortization of intangibles and deferred stock compensation, is expected to range between 4 and 8 cents.

Alvarion Ltd.

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