A 2/2/10 Press Release says Merriman Curhan Ford is initiating coverage on the Communications/Wireless technology sector. It includes this paragraph:
Aviat Networks, Inc. (NASDAQ:AVNW $7.19; Buy)
Although Aviat Networks has underperformed market indexes and its direct backhaul comps, the company remains extremely well positioned to benefit from exploding growth in mobile data traffic. Simply stated, the transition to 3G/4G and the adoption of smart phones is choking networks. Mobile backhaul is an immediate and sustained beneficiary of this trend. Customer specific issues have largely subsided and we believe customer activity is increasing. In our opinion, we believe the company has the right products, product roadmap, scale and complete end to end solution to achieve success. We believe that despite the cloudy visibility that the underperformance of shares will soon reverse and see upside to the $10-12 level as the valuation gap narrows with its competitors.
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We've seen the AVNW share price drop in these past few days to about $6.10/sh. This is largely because recent quarterly financials disappointed in reported revenue for the last quarter... guidance for the next quarter was below expectations as well. This comes against the backdrop that we're in the IP backhaul business... an area that is currently regarded as "on fire".
Cramer recommended AVNW last Fall with the expectation that we'd be showing huge revenues by early CY10. That's clearly not happening. I just saw an on-line video in which Cramer interviews our CEO (Harald Braun) to ask what's going on. Harald explains that this is a temporary issue and we should be seeing revenues flowing toward the end of CY10. He explains that the process of negotiating contracts with Tier 1 customers is lengthy and takes several quarters to complete. At the same time, AVNW is required to follow certain "revenue recognition rules" which prevent them from recognizing revenue... essentially deferring the recognition to later quarters... but Harald assures us that we have bookings that will support a higher level of revenue recognition later in the year.
[Other tidbits I noted in the interview: AVNW has $2/sh in cash and no debt. Also, in talking about the huge opportunity offered by the wireless market in India, Harald mentioned their 1/27/10 announcement of a 5-year contract with Uninor (a joint venture of Telenor Group and Unitech Ltd); see the press release for more info.]
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I have confidence in Harald. In the 18 months since assuming command, he has righted our ship and steered it on a new & far more lucrative course... which includes IP access as well as IP backhaul.
Anyone who has been involved in this stock as long as I have has a right to be skeptical and ask "Where's the Beef?". It always seems as if great things are only a year away. My feeling is that, this time, we will finally start to see huge growth in revenue and profits... perhaps as soon as "late CY10" as Harald predicts. The markets that Harald has targeted are huge (and they are very very hot right now)... I also think he has positioned AVNW well to take advantage of these markets and I expect this will be reflected in revenue, profits and (ultimately) share price soon enough. The above remarks by Merriman Curhan Ford indicate a price target of $10-12/sh. I think we can get there, and I think its also possible for AVNW to grow beyond this level as the global economic recovery gains momentum... but it will require investor patience.
AVNW Press Releases:
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