Alvarion appears to be heading for lean times

The WiMAX equipment maker will either become a lean and profitable company, or it will continue to burn cash.

By SHIRI HABIB-VALDHORN/GLOBES
March 5, 2011 21:50
Benjamin Netanyahu

Bibi netanyahu. (photo credit: JPost Staff)

After a stormy year full of upheaval, it is clear to everyone that WiMAX equipment maker Alvarion Ltd. has reached a crossroads, and the question is now whither will it go? Will it, as management plans, become a thin and profitable company that will exploit the opportunities in its target markets and enter new niches, or will it continue to burn cash, lose investor interest and maybe even its raison d’etre? Alvarion, created through the merger of Floware and Breezecom, develops broadband wireless communications systems, with a focus on WiMAX equipment. WiMAX was once considered a next-generation cellular technology, but it has lost out to LTE as the premier 4G technology in the market.

WiMAX still has a place, however, as a technology for connecting rural areas with broadband communications.

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Even during its peak years, Alvarion struggled to generate strong profits for long periods. In the past few years, it has been compelled to make several rounds of layoffs, which halved its workforce.

Since the end of 2009, the company has been run by president and CEO Eran Gorev, who was in charge of NICE Systems Ltd’s operations in the Americas. Gorev, who came from the enterprise field (business and government customers), decided that Alvarion would focus on this sector. Sixty percent of the company’s current revenue comes from telecommunications operator and vendors, and 40% comes from the enterprise market; the company plans to divert resources to the latter.

To Gorev’s credit, Alvarion’s enterprise operations expanded even during the tough year of 2010, generating a profit for the company.

The company therefore decided to invest more in the segment to reap a harvest later. At the same time, it continues to operate in its core market, telecommunications, although with lower expectations.

Under Gorev’s leadership, Alvarion entered a new segment, TDLTE technology, with the objective of providing supplementary products for 4G cellular networks, hoping to create a new growth engine.

Meanwhile, the market’s response to Alvarion’s new strategy is mainly skepticism. Since the company published a very weak financial report for 2010, the share price has fallen more than 10%.

Last week on the Nasdaq it had a market cap of $122 million. Only three years ago, the company’s market cap was $900m. and was an acquisition target for Cisco Systems Inc., but it has long since stopped being a dream for Wall Street investors.

After Alvarion’s 2010 financial report, Deutsche Bank said the company was seeking a new identity.

Analyst Jonathan Goldberg believes it will ultimately become a niche company with a smaller customer base and revenue.

“It is difficult to be optimistic about the company’s prospects.

The role they are creating for themselves could be viable, but there is significant execution risk,” he said in a report, reiterating his “hold” recommendation while cutting his estimates for the company.

Oppenheimer &Co. believes, however, that it is premature to assess the success of the changes at Alvarion, or to know whether they will turn out as management hopes.

Analysts are not the only people uncertain; so are Alvarion’s employees. It is possible that the focus on the enterprise market will prove itself, and the company will again grow and make profits. It might even become an acquisition target again. On the other hand, the focus on the enterprise market could be perceived as return to its roots, as this was BreezeCom’s core business before the merger a decade ago.

“Alvarion, like the industry as a whole, sees Chinese companies winning a strong position in the telecom market,” an industry source said. “If African communications companies want to set up a network, they need a lot of money, and the financing comes from credit lines provided by vendors like Alvarion. No company can match the terms offered by the Chinese, which is why companies like Huawei are winning serious market share.”

The Chinese are not yet a threat in the enterprise market, where Alvarion now hopes it has an edge at the technology level.

Alvarion’s main rival is Motorola Inc., which is not exactly a small company, but Alvarion is finding its place. It is interested in projects such as municipal wireless networks for schools or emergency services.

“These are small, but profitable, projects,” the industry source said.

People familiar with the matter believe Alvarion will use its $83.3m. cash reserves (although they have been dwindling in recent quarters) to make acquisitions to enhance its position in the enterprise market.

Nonetheless, even though Alvarion has not abandoned the telecommunications market, some analysts believe the focus on the enterprise market is a mistake, given the company’s past successes as a telecom vendor. For example, Alvarion beat larger rivals for the $100m. US Open Range project in 2009.

Alvarion has no dominant shareholders who could influence the company’s direction. No one owns more than 5% of its shares. Therefore, an activist institutional investor could buy up shares on the open market and make demands on the company’s operations, such as happened at Zoran Corp.

Alvarion once drew the interest of Israeli investment institutions, and it could yet interest them again. Meanwhile, if there is any such interest nowadays, it is not reflected in massive purchases of shares by any institutional investor.

“It pains the heart to see Alvarion in these circumstances – an Israeli company that is collapsing,” an Israeli hi-tech executive who knows the company well told Globes. Alvarion’s frequent layoffs have hurt employee morale, he said, bewailing that Gorev is running the company from his residence in the United States rather than from the company’s headquarters in Tel Aviv’s Ramat Hahayal. Alvarion’s long-standing chairman Antony Maher also resides in the US.

“How is it possible to manage a troubled company from 6,000 miles away?” the executive asked rhetorically. “Alvarion had managers who made mistakes, but there was a feeling that there was management. Today, there is a feeling of helplessness.”

Conversely, some people argue there are other companies with large operations in Israel that are headquartered in the US. Whatever the case, people familiar with the matter believe Alvarion’s condition is temporary and that Gorev will return to Israel soon.


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