S&P on Alvarion LTD. (ALVR) of Tel Aviv
alvarion.com
Trading today in the low $9s closer to its 52 week low of $7.87 than its 52 week high of $16.01, may be one worth watching in this space ...
>> Alvarion Rides the WiMAX Wave
Ari Bensinger
Standard & Poor's Equity Research
BusinessWeek
July 15, 2005
tinyurl.com
As the latest wireless broadband technology begins to catch on, this equipment maker is poised to see strong growth.
The latest buzz in wireless technology is WiMAX, a wireless-broadband technology targeted for the metropolitan area network (MAN). More often than not, this sort of "disruptive technology," as researchers like to call it, ends up being more buildup than substance. But while many challenges lie ahead, we at Standard and Poor's think WiMAX, with its capability of transmitting network signals covering distances in excess of 30 miles at a theoretical shared data rate of up to 75 megabits (Mbps), may actually live up to its billing and change the competitive landscape for telecommunications.
Given its ability to rapidly introduce high-speed data access throughout a local loop without the cost or delay of wired plant upgrades, wireless broadband is quickly emerging as a legitimate local access technology. To lower equipment costs, the wireless broadband market is in a continuing process of standardization. The WiFi Alliance, a nonprofit international association, has promoted the 802.11 wireless local area network (LAN) standard.
Working Together: The newest specification, WiMAX, short for worldwide interoperability for microwave access, applies to any broadband wireless access network based on the 802.16 technology standard, which relates to the wireless MAN air interface. WiMAX makes fixed wireless more attractive to service operators since it supports larger-range outdoor access networks with more performance and dedicated high-end services.
Similar to the WiFi Alliance, the WiMAX Forum, a nonprofit industry organization, was developed to ensure interoperable 802.16 systems from multiple vendors. The initial version of 802.16d, approved in the fall of 2004, is designed for fixed (non-mobile) applications only, such as wireless replacements for home DSL or cable modem service and wireless backhaul operations. Intel (INTC ; ranked buy; recent price: $27.59) has been a major supporter of the technology, developing a WiMax chip named Rosedale, which we think should help lower equipment costs by fostering competition and volume.
Until now, the uptake of fixed-wireless technologies has been restrained by the lack of interoperability between the equipment of the industry's many manufacturers as well as the lack of availability of standards-based components. The coming standardization process should help fuel the market's growth potential.
Developing Regions: Initial vendor 802.16d WiMAX certification, which is needed to standardize equipment, is expected to begin during the second half of 2005. We believe that systems based on the mobile version of the standard (802.16e), which could start shipping in notebooks and personal digital assistants (PDAs) as early as 2006, will have far greater potential than WiFi to provide ubiquitous coverage to rival that of cellular networks.
S&P believes fixed WiMAX is best suited for developing geographic areas that lack a sophisticated wired infrastructure, since it provides a cost-effective alternative for service carriers to connect broadband, as well as enterprise customers in areas that wired broadband doesn't reach. We think Mobile WiMAX, conversely, will likely be targeted toward developed countries, where it can provide wireline carriers and cable operators with a wireless technology to compete with rival third generation (3G) service offerings, potentially becoming a true disruptive technology.
One company at the forefront of the broadband wireless access market is Alvarion (ALVR; ranked strong buy; $9.69). It provides wireless broadband connectivity infrastructure -- point-to-point transmission through the air between stationary devices -- allowing telecom carriers and service providers to offer broadband data and voice services in the licensed and license-free bands.
Intel Onboard: In developing regions, Alvarion targets low-density population areas that have limited telecommunications infrastructures. In developed regions, the applications are aimed at countries that are lacking coverage in their telecommunications infrastructures and are seeking mass deployment of technologies for voice and broadband services. According to independent research group Skylight Research, Alvarion was the clear leader in the broadband wireless access equipment market, with a 31% share, as of March, 2005.
Alvarion helped produce the 802.16a wireless MAN standard and became a principal founder of the WiMAX Forum. In addition, in July, 2003, when Intel announced its intention to develop an 802.16-compliant silicon chip, it chose Alvarion as its systems house vendor to test the equipment.
It's clear that Alvarion benefits from getting a first look at the evolution of the WiMAX standard. The company is one of the few vendors to commercially ship WiMAX-ready equipment, which should only require at most a simple software upgrade, to become WiMAX compliant. Given its leading market position and our view of its time-to-market advantage, we see Alvarion as best positioned to benefit from our forecast of widespread adoption of WiMAX wireless technology. We also view the company as an attractive takeover candidate.
Bumps Ahead: Still, we think investors should prepare for hiccups. It's important to remember that technological transitions take time and usually encounter many roadblocks before widespread commercialization. WiMAX is no exception -- it faces several challenges ahead, including timely product certification, the wait for lower equipment costs, spectrum availability, and regulatory policies.
One need not look farther than Alvarion to better understand the risks involved in the timing of WiMAX acceptance. On July 5, the stock price dropped over 20% after the company warned that second-quarter revenue will be down about 15% from prior guidance, largely reflecting what we view as customer-project delays.
Alvarion stated that smaller vendors have been petitioning carriers to delay deployment plans until they can gain official WiMAX certification over the next couple of quarters in order to be considered for network testing. The company also indicated that spectrum-allocation holdups in Europe are having a negative impact on results. Although this is disappointing, we prefer to focus on Alvarion's attractive long-term market opportunity due to its strong market position.
Gaining Leverage: Following an estimated 7% sales increase in 2005, we see sales advancing 20% in 2006, to $260 million, reflecting increased demand for the company's wireless broadband products, primarily in developing countries with little existing telecom infrastructure. We expect WiMAX-related revenue growth to greatly benefit with Intel's introduction of lower-cost equipment during late 2005.
We see significant operating leverage in the company's business model, since we believe Alvarion's long-term goal of cutting total operating expenses to 35% of revenue, from the current 42%, is achievable over the next couple of years. Overall, we look for earnings per share to advance to 33 cents in 2006, from an estimated 5 cents in 2005.
We think Alvarion's current stock price doesn't fairly reflect the significant growth opportunity for its WiMAX products. Our 12-month target price of $14 is largely based on a forward p-e of 42 times our 2006 EPS estimate, excluding 15 cents of stock-option expense.
Premium Value: Combined with our 20% long-term estimated EPS growth rate for the company, the target price represents a forward p-e-to-growth (PEG) ratio of 2.1, above the peer mean. We believe this premium is more than justified by the sizable growth opportunities we expect to become available to Alvarion as the industry moves toward WiMAX. On a price-to-sales basis, our target price represents 3 times our 2006 sales-per-share estimate, a multiple we view as in line with other next-generation equipment suppliers.
Risks to our recommendation and target price include delays in the deployment of the WiMAX standard, increased competition from larger equipment vendors that may decide to enter the market, and the loss of a major customer. <<
>> Six S&P Picks Picks In WiMAX Suppliers
Forbes
07.05.05
tinyurl.com
Standard & Poor's Equity Research said it has a "positive stance" on the WiMAX wireless group and Airspan Networks (nasdaq: AIRN). S&P Equity Research said, "We believe this emerging market should meet some key milestones ahead: the IEEE global standard approval in late 2005 for fixed wireless and the rollout of WiMAX chips by Intel (nasdaq: INTC) and other firms." WiMAX trials are underway at AT&T (nyse: T), BT Group (nyse: BT) and Sprint (nyse: FON). Besides Airspan, other suppliers the research firm sees well positioned for WiMAX are Alvarion (nasdaq: ALVR), Alcatel (nyse: ALA), Ericsson (nasdaq: ERICY), Motorola (nyse: MOT) and Nokia (nyse: NOK).
>> Interest in WiMAX Boosts Alvarion Stocks
Caroline Gabriel
WiMAX Trends
July 12, 2004
tinyurl.com
Interest in WiMAX and the potential broadband wireless explosion is starting to have a significant effect on wireless stocks. Although most WiMAX specialists are privately held, those that do have listed stocks are flourishing, with Airspan the top performer, its share price up 232% in the year to end of June 2004.
Alvarion, the company with the largest market share in proprietary broadband wireless, has seen its market capitalization rise in the same period by 194% to $672m and has now received another boost from analysts at Pacific Growth Equities.
A research note by Pacific Growth analyst Joe Noel, who has just initiated coverage of Nasdaq-listed Alvarion, predicts annual revenue growth of over 55% this year, which would take the company to almost $200m, and earnings per share growth of 275% to 22 cents.
Noel is forecasting that the broadband wireless access sector will grow overall by 40-60% a year between now and 2007, with the main driver being WiMAX. The reason for the market bullishness about Alvarion and Airspan is that they are likely to be among the first to sign real contracts, even before WiMAX products ship, because they are offering guaranteed migration paths to full certified standards kit. Noel believes Alvarion will do well in the vital Chinese market, where he says the firm’s “E1 oriented backhaul offerings” will be highly suited to the requirements of this country.
Alvarion already has a position in China. In December, it announced a major deal with China Telecom, which is to deploy broadband wireless networks in four provinces based on Alvarion’s WalkAir 1000 Telecom Platform technology. Like WiMAX, this operates in 3.5GHz spectrum. China Telecom, which was awarded licenses to operate 3.5GHz broadband wireless networks in the second round of China’s frequency auction process, has been enthusiastic about 802.16RevD.
Alvarion, which was the first equipment maker to sign a silicon partnership for WiMAX with Intel, is now a supplier to all four of China’s leading fixed and mobile telcos, China Telecom, China Netcom, China Mobile and China Unicom.
For companies that purchase the company’s pre-standard WiMAX gear, BreezeMax 3500, there is a guaranteed upgrade to support full interoperability with 802.16RevD. However, this will not necessarily be free – this depends how much work needs to be done to bridge the two technologies. That fact may make Noel’s confidence that Alvarion will sign WiMAX deals this year overblown. Once Alvarion has fully certified BreezeMax gear, it will still support the pre-standard version, but will not continue to sell it. Upgraded equipment will support the original BreezeMax CPE as well as standard WiMAX CPE from any supplier.
Some operators will buy pre-standard WiMAX because they want its particular functionality immediately, not because they are concerned about interoperability, which in a fixed wireless world may not be vital in the early stages. The main reason to adopt standards in non-mobile environments will be the ability to mix and match CPEs and get the best price and form factor available, but this will only become a major issue well into 2005, when a large number of vendors have equipment on the market and prices are dropping.
Vice president of marketing, Carlton O’Neal, told WiFiNetNews: “They don’t care if we call it WiMax or a tomato, they want it”, because BreezeMax fits their current business cases, he said. He believes that the willingness to buy uncertified products is an indication of a new confidence in broadband wireless as a viable business.
Alvarion is certainly making the most of its canny decision to ally at an early stage with Intel’s powerful push behind WiMAX. This week, the two companies announced that they would team up to launch the first pre-WiMAX network in Latin America. Based on BreezeMax, the network will be operated by Millicom Argentina, which will deploy pre-standard kit in 40 cities from September this year to provide business and residential last mile services. It will also extend access out to suburban and rural communities. The whole network is expected to be in place by December.
Millicom has used proprietary Alvarion broadband wireless technology since 2000 but says it wants to move to the 802.16 standard for its increased bandwidth, better quality of service and the opportunity to lower CPE costs and to adopt mobility in the future.
In its last financial year, Alvarion made revenues of $127.2m with a net loss of $11.8m. Losses have been narrowing and the company is expected to be profitable this year, and has $162.7m in cash and investments. Analyst consensus is that it will make profits of about four cents per share.
Airspan is expected to be loss making until next year, but analysts rate the stock as a ‘strong buy’. <<
- Eric - |
