Alvarion: WiMax Potential

07/16/2004 12:00 am EST

Focus:

Michael Murphy

Former Editor, New World Investor

Michael Murphy is not only an expert in understanding the current state of high technology, but offers exceptional research on potential emerging trends. Here, he looks at WiMax, a developing trend in wireless broadband communications.

Alvarion (ALVR NASDAQ), based in Tel Aviv, is an emerging winner in WiMax technology. The company is in a perfect position to set the standard for a new technology and hold the top spot for many years in an industry that is set to explode. Alvarion makes a broad range of products to provide a complete solution, including amplifiers, antennas, receivers, and all the supporting components and network management software. Its customers are telephone companies, wireless cable TV service providers, Internet service providers, and companies installing private networks for their own use (such as alarm companies) or have a service to sell. They can handle voice (including high quality Voice over Internet Protocol), video or data—the converging telecom soup that is driving so much capital spending these days.

"WiMAX is clearly superior to the current WiFi technology. It’s faster (70 megabits a second versus 11) and has a much longer range. WiFi works very well for about 100 feet and pretty well up to 300 feet, especially if the sending and receiving antennas can see each other. The new WiMAX, however, will go 10 to 30miles if the antennas can see each other, and a couple of miles even if they can’t. It can replace DSL, cable modems, or even T-1 lines. Installation is fast—put an antenna on a building, and you are connected. There’s no need to run cables, and no worries about a backhoe down the street slicing through your cable, bringing your Internet connection down.

"Wireless broadband isn’t a new idea—Sprint offered it to residential customers in the 90s, but it was expensive, and every vendor’s system was different. Now, with a standard in place, the business is set to take off. Importantly, later this year, Intel should introduce their first WiMAX chipset, and in 2006 they plan to introduce a WiMAX version of their Centrino chip and make WiMAX a standard feature on laptops.  When Intel introduces WiMAX and combined WiFi/WiMAX Centrino chips in 2006, Alvarion will be well ahead of most potential competitors. They have already partnered with Intel and Siemens in a Georgia wireless broadband test serving almost 120,000 people, with no problems. ALVR has sold wireless broadband systems in more than 80 countries, and already is the #1 supplier in China, Latin America, and India, where they partner with Siemens.

"Alvarion was profitable in 2000, and then slipped into losses in 2001 through 2003. However, sales troughed in the September 2002 quarter and have grown sequentially ever since. With the telecom capital equipment recovery well under way, I expect them to report $200 million in sales this year and at least $250 million in 2005. That would produce a bottom line of $0.25 a share this year and $0.50  next (well above Wall Street’s current expectations). For the next five years, ALVR should be able to grow at 33% compounded. Just as important, they spend twice as much on R&D as they’ll report in earnings—which is exactly what they should be doing at this stage of WiMAX development. We consider the stock a real bargain."

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