When Hambrecht and Quist telecom analyst Daniel Amir was recently interviewed by Globes, he said, “WiMax has the hype not the demand.” I was surprised by his lack of faith in the forward march of technology.
WiMax, nicknamed "WiFi on steroids", stands for World Interoperability for Microwave Access. It is a form of wireless communications that can deliver high-speed internet over great distances at a low cost.
I for one can not wait for the rollout of these networks. Palms and Blackberries are too expensive for those of us who do not work for large companies. But I am tired of being tethered to my internet access.
While the effective range of WiFi is 300 feet, while the reach of Wimax extends over miles. This makes it suitable for both rural locations and urban multi-tenant commercial buildings. WiMax is also preferable to WiFi in hilly locations like San Francisco.
Last year, Sprint decided to spend several billions of dollars on a high-speed network based on WiMax technology. Sprint’s decision instantly validated Wimax.
The adoption of WiMax is still not universal. Qualcomm (Nasdaq: QCOM), producer of the most commonly used mobile technology, is hard at work at a faster version of its existing technology. This could be a threat to WiMax. Verizon Wireless chose not to invest in WiMax for that reason.
We are not just talking about the application of a new technology or faster service. Some experts think that WiMax and WiFi will revolutionize our consumer habits in a similar way to the effect that air conditioning had on movie theatres. Air conditioning lured people out of their houses and into the movie theatres.
WiMax the technology received another validation this week with the somewhat successful initial public offering of Wimax provider Clearwire Corp. (Nasdaq: CLWR). This should boost Wimax network solution providers Alvarion Ltd. (Nasdaq: ALVR; TASE: ALVR) and Ceragon Networks Ltd. (Nasdaq: CRNT; TASE:CRNT) in the long term. Ceragon also provides network backhaul solutions for WiFi.
Wall Street answered Clearwire founder Craig McCaw’s call for $600 million. 24 million shares of Clearwire were priced at $25. The stock price has since dropped to $21.39. After the offering, Craig McCaw still owns 49% of the company, tech giant Intel Corp. (Nasdaq: INTC) 30%, and Motorola Inc. (NYSE: MOT) 4%.
Intel and Motorola had previously invested a total of $900 million. Both Intel and Motorola have had mixed success in investing in new technologies. Motorola brought us the satellite-phone company Iridium that flamed out.
Many of the buyers of Clearwire stock believe that lightning can strike twice or three times. They wanted to invest alongside the visionary Craig McCaw. In 1994, telecom-industry pioneer and billionaire McCaw sold the first nationwide cellular network to AT&T Inc. (NYSE:T) for $11.5 billion. In 1995, Craig became a major investor in Nextel. It was later sold to Sprint for $35 billion. He did have his share of flops with XO Communications and Teledesic.
“As wireless broadband becomes widely available, we believe demand for a broad range of mobile applications will dramatically increase, including demand for e-mail, Web browsing, VOIP telephony, streaming audio and video, videoconferencing, gaming, e-commerce, music and video downloading and file transfers,” says the IPO prospectus.
The prospectus also clearly states the risks and costs of rolling out WiMax. Since its inception in 2003, Clearwire has already lost $460 million. It will continue to lose money for the foreseeable future.
The skeptics forget that investors in WiMax do not have to wait until it is profitable to make money. With a certain threshold amount of subscribers, a WiMax network could be sold at a profit to a deep-pocketed acquirer. Ceragon and Alvarion will attract interest from market players that are looking to invest in pure wireless plays.
I am recommending the speculative purchase of Alvarion at the current price of $7.70 and Ceragon at a price of $5.50. Alvarion recently announced contracts in Namibia and Okinawa. Ceragon received a vote of confidence from both the US and Israel Air Force.
An investor should put these stocks away and not look at them for several years. I can not recommend the purchase of Alvarion and Ceragaon on the basis of P/E or book value. They are both losing money.
Stockholders in failed ventures like Global Crossing, Iridium, etc probably think that I must have fallen on my head to make this recommendation. Investing in new technology at the ground-floor level is always a risk. I think that Wimax is a risk worth taking.
Laura Goldman worked on Wall Street for over twenty years for such firms as Merrill Lynch and UBS Warburg. She now runs her own investment advisory, LSG capital, from Tel Aviv.
The views she expresses are her own and do not necessarily reflect those of "Globes".
Published by Globes [online], Israel's business news - www.globes.co.il - on March 15, 2007
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