Notable IPO of the day, AirNet Communications Corp. (NASDAQ:ANCC)
Shares: 5.5M Amount: $70,000,000 Original Price Range: $11-$13, Final Price: $14
Trading will commence in the late morning of Dec 7, 1999
Lead Underwriter: Salomon Smith Barney Inc.
Business and Technology: AirNet Communications is a maker of low-cost and easily upgradeable
base stations for use in wireless networks. AdaptaCell Broadband, software-defined base stations that support high-speed wireless Internet services through software upgrades.AirNet makes wireless infrastructure products called base stations that link the wireless user to the traditional wireline networks through which the call is connected to the intended recipient. One of AirNet's two main products, AdaptaCell, is software-defined rather than hardware-defined as are the traditional base stations in use today . "Software-defined" means that the way the base stations codes and decodes the wireless transmission is defined by software. The advantage of a software-defined base station is that it allows wireless network operators to upgrade to new technologies as they are developed, simply by installing new code or software rather than a costly, and very often far more time consuming, replacement of the hardware.
Airnet's other main product, AirSite, is a smaller base station that is really a low-cost extension of the AdaptaCell base station. Up to 12 AirSite base stations can link to each AdaptaCell that is deployed.
The AirSites are linked back to the AdaptaCell via a wireless rather than physical connection. This is important because it allows network operators to extend their coverage in a cost-effective manner.
Wireless network expansion is typically done by adding base stations that are linked back to the wireline networks through a physical digital T-1 line (a T-1 line is a fully digitized connection -- rather than analog as are regular telephone lines -- used for high-speed transmissions), which can be quite expensive. The AirSite/AdaptaCell combination removes this necessity by using a wireless connection.
Both of AirNet's products are made exclusively for one kind of wireless transmission technology, GSM. The other two widely-used wireless technologies are CDMA and TDMA. Each of these 3 technologies is used to increase the amount of information that can be sent in a wireless transmission. GSM is the predominant standard used internationally, while TDMA is the most common technology used in the U.S. More specifically, according to Allied Business Intelligence, Inc., there were 3.0 million GSM subscribers, 5.8 million CDMA subscribers and 8.1 million TDMA subscribers in the U.S. as of 1998. Worldwide, however, GSM accounts for 200 million subscribers in 120 countries representing 45% of all wireless subscribers worldwide.
Competitors: Alcatel, Nokia, Ericsson, Nortel
Client List: At press time, Airnet has thus far enjoyed limited customer adoption. Despite the apparent attractiveness of AirNet's base station products, it has yet to secure a major domestic customer. In
addition, only 5 commercial deployments have taken place. To establish its technology as an effective solution for base station needs, ANCC will need to land a major account with either a domestic or
international wireless network operator
Underwriters: Salomon Smith Barney; Hambrecht & Quist; Volpe Brown Whelan & Company - not the strongest UW team on Earth but will suffice.
Business analysis:
The number of subscribers to wireless-based communication services are
expected to continue to grow at a rapid pace over the next few years.
International Data Corporation estimates that wireless users will grow
by roughly 29% compounded annually, reaching 1.1 billion users
worldwide in 2003, up from 303 million at the end of 1998.
AirNet Communications is a maker of low-cost and easily upgradeable
base stations for use in wireless networks. AirNet has invested over
$130 million in research and development of its technology since 1994
and has been issued 33 U.S. patents with 22 applications pending.
AirNet received the 1998 GSM World Award for Best Technical Innovation
from the GSM Association, an international body with members from 133
countries.
AirNet makes wireless infrastructure products called base stations that
link the wireless user to the traditional wireline networks through
which the call is connected to the intended recipient. One of AirNet's
two main products, AdaptaCell, is software-defined rather than
hardware-defined as are the traditional base stations in use today.
"Software-defined" means that the way the base stations codes and
decodes the wireless transmission is defined by software. The
advantage of a software-defined base station is that it allows wireless
network operators to upgrade to new technologies as they are developed,
simply by installing new code or software rather than a costly
replacement of the hardware.
Airnet's other main product, AirSite, is a smaller base station that is
really a low-cost extension of the AdaptaCell base station. Up to 12
AirSite base stations can link to each AdaptaCell that is deployed.
The AirSites are linked back to the AdaptaCell via a wireless rather
than physical connection. This is important because it allows network
operators to extend their coverage in a cost-effective manner.
Wireless network expansion is typically done by adding base stations
that are linked back to the wireline networks through a physical
digital T-1 line (a T-1 line is a fully digitized connection -- rather
than analog as are regular telephone lines -- used for high-speed
transmissions), which can be quite expensive. The AirSite/AdaptaCell
combination removes this necessity by using a wireless connection.
Both of AirNet's products are made exclusively for one kind of wireless
transmission technology, GSM. The other two widely-used wireless
technologies are CDMA and TDMA. Each of these technologies is used to
increase the amount of information that can be sent in a wireless
transmission. GSM is the predominant standard used internationally,
while TDMA is the most common technology used in the U.S. More
specifically, according to Allied Business Intelligence, Inc., there
were 3.0 million GSM subscribers, 5.8 million CDMA subscribers and 8.1
million TDMA subscribers in the U.S. as of 1998. Worldwide, however,
GSM accounts for 200 million subscribers in 120 countries representing
45% of all wireless subscribers worldwide.
Short-termed Trading and Investment Analysis: The number of subscribers to wireless-based communication services are expected to continue to grow at a rapid pace over the next few years.
International Data Corporation estimates that wireless users will grow by roughly 29% compounded annually, reaching 1.1 billion users worldwide in 2003, up from 303 million at the end of 1998.
There are several factors leading to my contention that AirNet Communications Corp. will be a strong performer, including:
1. Consistent Market Growth: The increasing amount of wireless
subscribers coupled with the increased amount of wireless usage per
subscriber is forcing many wireless operators to upgrade and expand
their existing networks to meet the demand. Allied Business
Intelligence forecasts that the number of base stations deployed will
increase from 823,000 in 1998 to 2.3 million in 2003, representing an
annual 23% growth rate. Many wireless operators that are investing in
their networks are PCS licensees, which represent the Federal
Communication Commissions solution to ease the crowded airwaves by
auctioning off more radio spectrum. Because these licensees use a very
high frequency radio spectrum, they require up to 4 base stations to
get the same coverage as would a network that is using the current low
frequencies. In addition, because AirNet has only marketed its product
to domestic wireless network operators, the larger international market
represents enormous potential. These factors all point to sufficient
demand for the right product.
2. Catalysts for Demand: Other than the tremendous increase in
wireless usage creating demand for AirNet's products, there are
technological developments in process that, when complete, will further
increase demand for AirNet's base station solutions. Over the next few
years, several technologies are being developed to allow high-speed
transmission of data over wireless networks. These technologies
include GPRS, EDGE and 3G. As each technology is commercialized,
network operators will need to upgrade their base stations to handle
the new technology. The requirements plays right into the strengths of
the AdaptaCell product, which is software-upgradeable, thus minimizing
upgrade costs.
3. Improving Financials: Because the majority of AirNet's revenues
are based on one-time sales, its quarterly results can fluctuate
significantly from quarter to quarter based upon purchasing patterns of
its customers. Nevertheless, AirNet has seen a pick-up in orders over
the past two quarters as revenues have jumped by over 300% to $6.7
million. Although not yet profitable, Airnet is getting closer to
profitability as well: its net loss has decreased from $4.4 million
two quarters ago to $2.6 million for the most previous quarter ending
September 30th. Part of this reason is that the recent spike in
revenues has not been associated with huge marketing costs to get
customers in the door. Sales and marketing expenses as a percentage of
revenues have declined to 14.7% from 41.3% two quarters ago. The infusion of $70 million from the IPO of course can only help.
Expectation and Final Analysis: As an wireless play, ANCC will likely offer ample opportunity in aftermarket trading. There is hardly any mention of ANCC in SI, which means it's yet an undiscovered play. I can only smile upon similar opportunities in which I was able to avidly accumulate shares of Viador at the measly cost of $9 3/8 (JCDA at 8, ASDS at 8 ¬ are two other occasions in which we took full advantage of the inefficient market). ANCC will likely present a similar undiscovered, undervalued play in tomorrow's aftermarket trading. I expect AirNet to open between 35 to 40, not much premium for a promising company with highly valuable proprietary products in a sizzling sector. |
