California Amplifier Rides Sprint's Wireless Coattails
Dow Jones Newswires
By Pat Maio
Of DOW JONES NEWSWIRES
CAMARILLO, Calif. -- California Amplifier Inc. (CAMP) struggled for years to abandon its military past, but it now appears poised to cash in by supplying a critical part for Sprint Corp.'s (FON) new wireless communications system.
California Amplifier's stock is now hovering in the $44 range, up from less than $2 a share two years ago. And one of the two analysts who cover the company said he expects the shares to hit $90 in the next year, in a large part due to a relationship the company has established with Sprint.
In March 1999, Sprint paid $1.3 billion to buy the fixed wireless licenses then held by five financially ailing wireless cable companies -- including People's Choice and American Telecasting. Using towers, antennas and modems, the fixed wireless communications system downloads data and video from the Internet to personal computers at speeds said to be 100 times faster than digital subscriber lines.
The system, called "Multi-Channel, Multi-Point Distribution Service," or MMDS, is sometimes referred to as the "last mile," because it is there that local telephone and cable companies have a stranglehold on the telephone and cable lines that hook up to homes and businesses.
California Amplifier supplies antenna parts for the broadcast of signals from a microwave tower and transceiver antenna attached to residential rooftops to help get over this last mile, thereby allowing MMDS to avoid using telephone lines.
"Our product is one part of the system, but it's critical due to the microwaves and operation in severe climates,' said Michael Ferron, California Amplifier's chief financial officer.
Battle For Marketshare Heats Up As Orders Arrive
Sprint is the furthest along in its efforts to build an MMDS system. To date, it has 10,000 subscribers in the Phoenix and Tucson areas -- the first large-scale MMDS site under construction in the U.S. Next on the Sprint's list are San Francisco, San Jose and Colorado Springs, Colo.
That's good news for California Amplifier.
Orders are starting to flow, and the company's stock price is reflecting the production ramp up.
"California Amplifier is well-positioned to capture a significant share of these deployments," said Glenn Powers, an analyst with Roth Capital Partners, who has a strong buy rating on the stock.
If Sprint can attract an estimated 350,000 subscribers for its wireless system by the end of next year -- which it said is possible -- that could mean California Amplifier would receive roughly 60% of Sprint's business to supply components. That translates to roughly $42 million for California Amplifier, Ferron said.
Thus far, California Amplifier has shipped 20,000 transceiver antenna products to Sprint. Orders are expected to come from the other phone giants as well, making production projections over the next few years difficult, Ferron said.
The company, which employs about 700 workers, is considering another factory in nearby Oxnard, Calif., if the manufacturing boom continues.
Tim Sutton, president of Sprint's broadband wireless group, said he hopes MMDS will be in 15 major cities by the end of 2000 and in 70 U.S. markets by the end of 2001. The service costs $39.95 a month, making it competitive with DSL and cable modems, a Sprint spokesman said.
But the fight for marketshare in this emerging communications niche has become fierce, industry observers said.
In addition to Sprint, MCI Worldcom Inc. (WCOM), NuCentrix Broadband Networks Inc. (NCNX) and Bellsouth Corp. (BLS) hold licenses to build MMDS systems. Each of the MMDS license holders is working closely with a systems integrator, like Nortel Networks (NT), Lucent Technologies (LU), Cisco Systems Inc. (CSCO) or ADC Telecommunications (ADCT).
And each of the integrators has turned to a components maker like California Amplifier, Andrew Corp.(ANDW) Remec Inc. (REMC) or Signal Technology Corp. (STCO) for the antenna transceivers.
Further down the supply chain are modems. Modem makers, like Vyyo Inc. (VYYO) and Hybrid Networks (HYBR), are key to the system, and are also jockeying for a piece of the pie.
Shifts In Strategy Begin To Pay Off
For California Amplifier, though, the parts it supplies for MMDS may be the defining products in its efforts to shed its military past. The company has struggled since 1990 when it abandoned the sale of microwave radio components to the military as Pentagon spending on the Navy projects the company was involved in dried up.
California Amplifier then began selling transceivers, downconverters and other antenna devices to the cable, phone and television industries.
In the late 1990s, the failure of wireless cable companies, like People's Choice, American Telecasting and CA Wireless, to replace traditional cable companies along with the failure of a consortium of big phone companies, called Tele-TV, to deliver video to wireless cable subscribers left California Amplifier scrambling to replace lost revenues with new streams of business.
But with virtually no debt, the company was able to capitalize on the manufacture of "downconverters" on direct broadcast satellite dishes -- itself a promising technology. Last year, California Amplifier bought a Texas company, Gardiner, to help generate revenue in this area. The satellite TV business has provided a steady stream of $20 million or so in revenues each quarter for several years.
But this isn't the strategic direction the company plans to take in the future. In the latter 1990s, California Amplifier's wireless voice and data products brought in a few million dollars in sales, and it's in this area that the company hopes to build a tighter relationship with Sprint as MMDS catches on, Ferron said.
"It seems like we have a real chance of making it now," he said.
-By Pat Maio, Dow Jones Newswires; 323-658-3776; patrick.maio@dowjones.com |
