Share price fell 21.49% today, on volume exceeding 2.75 million, following yesterday's release of quarterly financial data. The closing price was $4.75/sh, down $1.30/sh from the previous day's close which itself was down substantially from the previous few days. In recent weeks the share price was hovering near $7/sh and had closed at $7.35/sh on 26 April 2010. That's quite a dramatic plunge.
With $140 million in cash and 59.66 million shares outstanding, the company has over $2.30/sh in cash. At today's closing price, the market is valuing the rest of the company at only $2.45/sh.
As I see it, the key problem is that AVNW has not shown an ability to grow their top line. Sales are hovering at about $120 million/quarter when they should be at least $150 million/quarter and growing robustly. While there may be problems with "revenue recognition", these problems are not sufficiently large to explain the low revenue numbers. The problem, it would seem, is simply that they are not winning enough business.
AVNW's excuse-du-jour is that their "Tier 1" customers are spending very cautiously right now. Everything one hears about heavy spending on wireless backhaul equipment must be from all those "Tier 2" and "Tier 3" players. I'm not sure why AVNW doesn't just sell equipment to those "Tier 2" and "Tier 3" players as well. Are they even trying to compete for this business?
One key issue is the old vendor-financing conundrum. Some of AVNW's bigger competitors are able and willing to undertake the risk of providing loans to customers in order to sell equipment. In an environment where traditional banks are unwilling to provide such loans, AVNW cannot (and should not) undertake such a risky strategy. Maybe its true that those "Tier 2" and "Tier 3" players are the only customers who are spending heavily right now... and these weaker players just can't get bank financing. If that's the only issue, then things are okay because those "Tier 1" customers will eventually start buying and/or bank credit will eventually start to flow... AVNW will just have to suffer a little while longer.
But I'm worried that there is more to this than vendor-financing. I'm worried that AVNW products are not sufficiently more desirable than competing products. I wish I had greater insight into the bidding for specific contracts and could see why AVNW is not winning more business. Importantly, AVNW must constantly innovate and stay ahead of its competition. While I desperately hope AVNW has some hot new products in development (products that offer a substantially better value proposition), I worry that their competition may catch up with them.
In any case, it looks as if the current quarter will again come in with something like $120 million in revenue. Barring any pleasant surprises, we'll have to wait until Q3CY10 before we can hope for quarterly revenue approaching $150 million. Such hope might be buoyed by the great "internet tsunami" which is supposed to create huge demand for backhaul equipment. I still believe this market demand exists, but now I'm worrying whether the orders will flow to AVNW or to its competitors. |
