The Make-or-Break WiMax Deal

If WiMax is to gain a significant share of the 4G opportunity, it will have to make dramatic strides in the next couple of years while long-term evolution (LTE) is still in the development stages. Alvarion has quietly moved to the front of the WiMax stage with more than 250 installations worldwide, but, realistically, it has not yet translated into a very large revenue opportunity (i.e. about $450 million life-to-date). This revenue reality -- coupled with the current macroeconomic circumstances which weigh heavily on the ability of service providers to find adequate financing -- has been a huge drag on Alvarion’s stock. Nortel Networks Ltd. 's decision to drop mobile WiMax and end its OEM deal with Alvarion also had an effect on the Israeli firm's revenues in the fourth quarter of 2008. (See Alvarion Takes Nortel Hit.)

As of March 16, Alvarion is down about 27 percent on a year-to-date basis, and that is at least 10 percent points more than the broader market averages. What is more important from an investor perspective is that 84 percent of its current market capitalization is in cash and the company has no debt.

In essence, the market is saying that the enterprise value of this company is worth only 0.09-times estimated 2009 revenue estimates. That’s an amazingly low figure when you consider some others in the communications equipment space as shown in the table below.

Table 1: Communications Equipment Suppliers
 Enterprise Value to Sales Comparisons 
EV/Sales EV/Sales
F5 1.98 Infinera 0.85
Adtran 1.74 Harris 0.83
Cisco 1.71 Aruba 0.71
Riverbed 1.70 Ciena 0.60
Juniper 1.54 ADC Telecom 0.35
BigBand 0.87 Tellabs 0.28
Source: Yahoo Finance

This BSNL contract is a seminal event for Alvarion, in my opinion. Should they win, it would propel Alvarion to the top tier of vendors that are considered in all future WiMax installations. But should they lose, they'd be kept in the position of constantly having to get noticed and separate themselves from their much larger competitors. It’s not life or death for the company, per se; that will be determined by their profit and loss statement. But it is very important from the perspective that Alvarion has the opportunity to hit the long ball from a very big stage.

We should not have very long to wait because a final decision from BSNL is expected to be made in very short order. For now, all each of the vendors can do is sit and wait.

— Bob Faulkner, Unstrung

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