TF, I think the issue of future earnings is the crux. There are indeed a number of analysts (such as DLJ, repeatedly) that have been saying that there has been something of a revenue "bubble" this year for merchant wireless infrastructure amplifier manufacturers, and that next year's revenues may be flat or even down in some cases.
Whether or not this is true remains to be seen. There is also a strong tendency toward customer concentration by all these companies, as there are only a limited number of OEM customers. This is an important risk factor, since the company in effect does not control its own market, it's largely in the hands of the customer and his success in winning projects, decisions on inventory levels to maintain and so on.
In general, in this business, a slowdown of the PCS/digital cellular buildouts is a double whammy for merchant suppliers. First, because there's less business out there. And second, when business slows down some OEM customers will tend to make rather than buy, because in some cases the merchant supplier is only getting "spillover" business that the OEM customer can't handle by himself (numerous OEM customers such as Ericsson and Motorola build their own amplifiers also, although not Nortel). |
