Focus on WiMAX

09/24/2004 12:00 am EST


Some of the very best research comes from advisors who develop an expertise in a specific sector. On such advisor is Nikhil Hutheesing, editor of Forbes Wireless Stock Watch. Here, he provides an in-depth analysis of Alvarion and the potential for its WiMax technology.

"Alvarion (ALVR NASDAQ), an Israeli-based company that provides wireless infrastructure products to carriers, has been on the move lately. In its second quarter, the company posted a profit and said it expects growing demand for its products on a worldwide basis. While its current roster of wireless broadband products is doing well, there is much hope pinned to new products that allows for the transport of voice and data over WiMAX—a high speed wireless technology that is expected to be adopted over the next few years. WiMax is a technology that offers wireless access data rates of up to 75 megabits per second, theoretically over a range of up to 30 miles. With support for its WiMAX technology coming from companies such as Intel and increasing demand for Alvarion’s products from developing countries, Alvarion should continue to prosper.

"At the recent Money Show in Atlantic City, a number of investors who attended my presentation asked me about what I thought of Alvarion’s strategy. The stock was already on my short list of wireless companies to look into—but investor interest in this little company prompted me to give it a rigorous review. I’m glad I did. What I found was a company that not only is on the cutting edge of developing products for new high-speed wireless networks, which will begin to be deployed in a couple of years, but also a company that has a solid business today. This is no fly-by-night wireless start up. Alvarion is focused on selling equipment such as base stations that are used to make voice and data transmission possible over broadband wireless networks in the areas of the world that need it most—places like South America, Africa, China, and parts of Eastern Europe.

"The real catalyst for this company could be a new wireless broadband technology, or WiMAX. To be sure, WiMAX is receiving a lot of hype these days, especially since Intel announced that it will be making chipsets for this technology. And while it is unlikely that any real adoption of this technology will happen until 2006 at the earliest, the company has already launched a product based on WiMAX, aimed at both the business and residential markets. It is commercially available and in trials by operators such as Cooperativa de Telecommunicaciones Santa Cruz, the second largest phone cooperative in Bolivia, Kenya Data Networks, India’s Reliance Infocomm, China Telecom and Telefonos de Mexico. The product is being marketed to operators in Western Europe and the Asia/Pacific region.

"Alvarion also stands to benefit from a unique relationship with Intel. Intel plans to develop chips compliant with the standard that will be compatible with WiMAX. Those chips should start being developed in 2005. Alvarion is working closely with Intel as it develops its chipsets, using Alvarion’s technology and products. Importantly, Alvarion is also working with Intel on business development efforts that will help to increase Alvarion’s profile around the world and should give the company an edge when it comes to selling its WiMAX products. One risk I see comes from management’s willingness only to give earnings guidance for one quarter out. While this is not entirely uncommon in this sector, it does mean that the company’s shares could fall without much warning if there is a downward earnings revision. There is also risk due to Alvarion’s concentration of clients, particularly in South America. And of course, investing in a Tel Aviv-based company Alvarion comes with some of the geo-political risks associated with the Middle East.

"Alvarion is in a growth phase and has only just become profitable. This is a pure-play vendor in the fast growing broadband wireless access market. The company has focused on developing regions of the world to sell its products, and is positioning itself with partner Intel to become a major player in WiMAX technology. However, this isn’t a company waiting around for WiMAX to take off. Alvarion, recently profitable, stands to benefit this year and next from sales of its existing wireless products. With a strong balance sheet and improving fundamentals, shares of Alvarion are attractive at current levels. I have a price target of $16 within the next 12 months."

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