Powerwave's Swedish Meatball

The $407 million acquisition of Sweden's LGP Allgon Holding (ST:LGPA) by Powerwave Technologies Inc. (Nasdaq: PWAV) continues the recent spate of consolidation in the RF subsystems market, with analysts hailing the deal as a much needed shot in the arm for the U.S. purchaser (see Powerwave Acquires LGP Allgon).

The stock-for-stock deal sees Powerwave -- the world's largest RF power amplifier vendor in terms of market share -- gain control of the Tower-Mounted Amplifier (TMA) industry dominated by LGP Allgon.

Power amplifiers are typically deployed at ground level in an effort to boost the strength of the outgoing radio carrier signal from the basestation. A recent Unstrung Insider report, "W-CDMA – Disrupting the Technology Chain," states that power amplifiers can account for up to 40 percent of the cost of a W-CDMA basestation.

TMAs increase the inbound signal arriving from the handset. They reside on the network tower itself and amplify the signal on the receiver side of the basestation. So the deal puts the merged company in firm control of two essential markets for basestation components.

“There is virtually no overlap in our product lines,” Powerwave CEO Bruce Edwards told analysts in a conference call. “We will have a much broader product portfolio, an R&D budget of $60 million a year, and a global presence. It clearly creates a global leader in the wireless infrastructure market.”

Meanwhile, Powerwave CFO Kevin Michaels expects “combined 2004 revenues to exceed $600 million with annual cost savings of $15 million.”

Analysts cite Powerwave's lack of product diversity as a catalyst for today’s deal.

“Powerwave has been viewed by the market as strategically disadvantaged, as it was essentially a one-product company selling power amplifier basestation infrastructure,” comments Rich Valera, securities analyst at Needham & Co. “They are a leader in their niche, but a one-product company nonetheless. Rivals like Andrew are much larger and more diversified.”

“It is clearly in Powerwave's interest to diversify its product line,” agrees Peter Jarich, senior analyst for wireless infrastructure at Current Analysis.

Valera also notes that the vendor will benefit from LGP’s involvement in the filter and basestation antenna market, as well as improved access to potential European customers.

Today’s deal marks the latest round of consolidation within the RF subsystem sector. LGP Allgon is itself the result of an acquisition in March this year, preceding the formation of the world’s largest and most diversified supplier of radio components in July (see Andrew Swallows Allen).

— Justin Springham, Senior Editor, Europe, Unstrung