The WiMAX standard is Alvarion's (Nasdaq: ALVR; TASE:ALVR) great hope for the future. The reason is that extensive penetration and widespread use of WiMAX can greatly increase its revenue, but if WiMAX fails, Alvarion's chance for a substantial jump in revenue will be poor. In the meantime, a large question mark hangs over the market's response to the new standard, and the time frame for WiMAX's adoption is unclear. Consequently, when two research companies, ABI Research and Visant Strategies decide to examine WiMAX's potential market this is good news for Alvarion, since it implies that the market is starting to recognize the WiMAX standard.
The two studies, published last month, follow CNET's declaration that WiMAX is the most promising technology of 2003, better than UMTS 3G wireless communications technology. At the award ceremony, it was said that wireless technologies had promised a lot but delivered little, because the market was splintered, creating incompatible proprietary products. WiMAX, it was said, should change this situation by standardizing wireless technology.
WiMAX is supposed to provide the access solution for the last mile, competing against fixed-line broadband technologies such as DSL, cable, and T1 point-to-point infrastructures. WiMAX is designed to provide wireless access within a 50-km range. The actual operational distance will probably be closer to 10 km, with up to 70 megabit bandwidth. Most of the interest in the 802.167 standard is because it facilitates a global wireless access standard. Standardization will lower equipment costs and make it popular. It will also reduce Alvarion's profit margin, which means that while the company's sales may soar, its profitability will decline.
Alvarion took a major step toward the WiMAX market in July, signing a contract with Intel (Nasdaq:INTC) to jointly develop next-generation broadband wireless access systems. Under the agreement, the two companies will cooperate on developing a processor for the 802.16 standard, the broadband wireless access standard now branded as WiMAX.
The announcement is important for two reasons: first, it marks Alvarion as a key player in the wireless industry and with the processor giant seeing it as a worthy partner with which to enter the sector; second, it means that Intel recognizes WiMAX as the next wireless standard, and that it plans to be a leader in this sector.
Oscar Gruss analyst Ehud Eisenstein says Intel's commitment is vital, but it is still necessary to see if other major corporations will also invest in the new standard. "It would be nice if other major chip companies, such as Motorola (NYSE:MOT), joined the WiMAX standard, even as competitors to Alvarion, because we'd then know that the commitment to the sector was real, and not a passing fancy.
"Another missing ingredient is a major communications provider, such as Sprint Corporation (NYSE:SDE), AT&T (NYSE:T), or one of the Baby Bells, adopting WiMAX and launching trials. That will be one of the most important signals for the investor community. It should be remembered that Intel, like Alvarion, is an equipment seller, and finding customers committed to the new standard is another story altogether."
Eisenstein also believes that although Intel mentions mid-2004 as the target date for launching WiMAX products, the launch will actually occur later. "The time dimension will be critical for Alvarion, because it raises the question, what will the company do until the standard comes out and products are sold?"
Eisenstein says Alvarion's current share price already reflects investors' anticipation of the company's success. "WiMAX is a source of positive sentiment on the part of investors and is boosting Alvarion's share price, but the company will only enter the sector in early 2005."
Alvarion's share price has enjoyed positive market sentiment, quadrupling in the past seven months to $7.10, representing a market cap of $366 million.
Alvarion will have to be satisfied with growth in its core businesses and increased sales of its wireless broadband access equipment in the meantime. Eisenstein says Alvarion launched 5.8 Gigahertz wireless broadband access products two quarters ago. They are selling well, according to company figures.
Eisenstein adds that InnoWave has also been a great success, "maybe coincidently", as he put it. Alvarion Acquired InnoWave from ECI Telecom (Nasdaq: ECIL) in April, and then won a $23 million contract from TelMex (NYSE:TMX; Nasdaq:TFONY; Latibex:XTMXL), the leading Mexican telecommunications company, in May.
China may also be a source of growth for Alvarion in 2004, but any deals are supposed to be only appetizers for the company's entry into WiMAX. "InnoWave's market will probably be a source of good news, like the recent large contract, but not necessarily. Alvarion's success in the Chinese market is also hard to estimate until real commercial installations happen," says Eisenstein.
A CIBC report, published after the Alvarion-Intel cooperation agreement, states, "Alvarion is in a leading position to supply equipment for the 802.16 market, which should benefit the company. The wireless access industry is on the road to recovery, and 802.16 equipment will make its breakthrough during 2004. In the meantime, with a strong balance sheet and reputation as a market leader, Alvarion can become the leading supplier for the wireless sector."
Alvarion's third quarter guidance predicts $30-34 million in revenue, and, thanks to the new InnoWave contract, it hopes to post a net profit in the fourth quarter.
Published by Globes [online] - www.globes.co.il - on October 28, 2003