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Powerwave Technologies Inc. (NASDAQ:PWAV)

Q2 2010 Earnings Call

August 02, 2010 05:00 pm ET

Executives

Tom Spaeth - Treasurer

Ron Buschur - President and CEO

Kevin Michaels - CFO

Analysts

Steve O’Brien - JPMorgan

Bill Choi - Jefferies & Company

Scott Searle - Merriman Curhan

Brian Modoff - Deutsche Bank

David Marsh - McMahan Securities

Amir Rozwadowski - Barclays Capital

Operator

Good day ladies and gentlemen and welcome to the second quarter 2010 Powerwave Technologies earnings conference call. My name is Yvette and I will be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions).

I would now like to turn the call over to Mr. Tom Spaeth, Treasurer. Please proceed, sir.

Tom Spaeth

Thank you. Good afternoon and welcome to Powerwave Technologies’ second quarter 2010 financial results conference call. I am Tom Spaeth, Powerwave’s Treasurer. Joining us today on the call will be Ron Buschur; President and Chief Executive Officer and Kevin Michaels, Chief Financial Officer.

Before starting, I would like to point out that various remarks we make about future expectations, plans and prospects for Powerwave, including but not limited to anticipated revenues and revenue growth rates, operating margins, gross profit margins, earnings per share levels, cash flow projections, revenue compositions, supply chain constraints and shortages, manufacturing levels, improvements in cost structure, cost savings related to our facility consolidations, future cost savings related to our cost reduction activities, demand levels for the company’s product lines, projected growth and market share, trends in the wireless infrastructure market, the timing of product deliveries and future orders, the company’s ability to enter into and compete in vertical markets for its products such as government and defense markets, common stock prices, debt purchases, the success of new products, expense levels, capital expenditure rates, inventory turns, tax rates and days sales outstanding are all forward-looking-statements.

These statements are subject to numerous risks and uncertainties that could cause Powerwave’s actual results to be materially different from those projected or implied. Some of the risks and uncertainties include our ability to accurately forecast and anticipate customer orders, our ability to obtain material components within expected lead-times, realized anticipated cost savings and synergies, the negative impact on demand for our products due to the macroeconomic environment, reduced demand due to industry consolidation among our major customers, fluctuations in foreign currencies, the ability to accurately forecast cash flows and credit collections, ability to enter into new markets for our products and solutions, the impact of competitive products and pricing, economic and political conditions and the loss of one or more of significant customer accounts.

Please refer to our press release, Powerwave’s current Form 10-K/A, for the fiscal year ended, January 3rd, 2010, or Form 10-Q for the quarter ended April 4th, 2010, and other filings which are on file with the Securities And Exchange Commission for additional information on factors which could our actual results to be different from those projected or implied.

In addition on this call, we will discuss non-GAAP financial information. A reconciliation of the non-GAAP financial information to our financial statements as prepared under GAAP is included in our press release dated today, which can be found at our website at powerwave.com and on Business Wire. The press release also has detailed information concerning several of the significant items impacting our results and we urge you to review that information.

Now I am going to turn the call over to Kevin Michaels, Powerwave’s Chief Financial Officer.

Kevin Michaels

Thank you, Tom. And with all the risk factors in mind, I would like to start by reviewing our financial results, which are also summarized in our press release. Net sales for the second quarter of 2010 were $144.6 million and we reported GAAP net income of $224,000, which equates to earnings per share of zero cents. This includes $900,000 of restructuring and impairment charges and $800,000 of non-cash debt discount amortization expense related to certain of our outstanding convertible notes. These charges and amortization totaled approximately $1.7 million for the second quarter.

On a pro forma basis, excluding the restructuring and impairment charges and the debt discount amortization charges. We generated pro forma net income of $2.5 million, which equates to pro forma net earnings of $0.02 per share. I want to note that included in both our GAAP and pro forma results, is the impact of approximately $800,000 of pre-tax stock-based compensation expense, almost all of which is included in operating expenses. Excluding this expense from our reported results adds approximately $0.01 to EPS for both GAAP and pro forma results. The prior year period impact was also $0.01 to EPS for both GAAP and pro forma.

During the second quarter, we continued to be impacted by supply shortages of various electronic components, as well as continued long order lead-times for such components. Ron will provide additional description of this in his remarks. On a geographic basis, total Americas revenue for the second quarter of 2010 was approximately $52.5 million or 36% of revenue. Total Asia-Pacific sales were approximately $48.5 million or a 34% of revenue and our total European and other international revenues were $43.6 million or approximately 30% of revenues.

In the second quarter, antenna system product group sales totaled $56.7 million or 39% of total revenue. Base station subsystem sales totaled $77.6 million or 54% of revenue and coverage solution sales totaled $10.3 million or 7% of revenue. In terms of our customer profile in the second quarter, total OEM sales account for approximately 44% of our total revenue and direct and operator sales account for approximately 56%. This is a significant change from the first quarter split which was 55% OEM and 45% direct and operator sales.

Moving on to gross margins. On a GAAP basis, our total consolidated gross profit margin was 29% in the second quarter, which is an increase of 300 basis points from the first quarter of this year. In our press release on page four, there is a table with the reconciliation of the various factors impacting our gross margin for the quarter. On our pro forma basis, excluding restructuring charges which totaled $700,000, our total gross profit margin was 29.5%. We believe that our improved gross margins are a demonstration of the success of our business strategy of the last three years, which include our expensive manufacturing restructuring efforts and cost control activities, as well as our focus on targeting higher margin sales activities within our target markets. We certainly have more work to do, but we are pleased to be operating in the higher end of our target gross margin range from the mid to high 20s.

Next I will review our operating expenses for the second quarter. Our sales and marketing expenses were $8.4 million, research and development expenses were $15.7 million and G&A expenses were $11.3 million. On a pro forma basis which excludes restructuring charges, our total operating expenses equaled approximately $35.3 million, which is in line with our $35 million quarterly target for this year.

In terms of other income and expense, we recorded a total of approximately of $4.6 million of other expense in the second quarter 2010. The largest component of this is our interest expense for the quarter. In addition, the existing 1.875% convertible subordinated notes due 2024 incurred approximately $800,000 of non-cash debt discount and amortization expense during the quarter pursuant to FASB accounting standards codification topic 470-20 which is included in interest expense.

During the quarter, we repurchased a total of $3 million par value of 1.875% convertible subordinated notes to 2024 which resulted in a net accounting gain of approximately $85,000. This brings our total outstanding long-term debt to approximately $278 million with only $68 million coming due in November 2011.

In addition, we did incur a net foreign currency translation loss of approximately $1.8 million for the quarter which is also included in other expense. On a pro forma basis excluding the non-cash debt discount amortization for the quarter, our total net other expense is $3.8 million. Our second quarter tax rate was impacted once again by the income generated in China that was not offset elsewhere.

This resulted in net tax position for the quarter of approximately $1.6 million. Although we continue to evaluate our future tax rate based upon diverse semi-national operations we currently estimate our effective worldwide tax rate will be between approximately 15% to 25% for 2010. I want to stress that this estimate will fluctuate based upon our actual results.

Next, I will review our balance sheet. Total cash at July 4, 2010 was approximately $62.3 million of which $900,000 is restricted cash. The slight reduction in cash in the first quarter of 2010 is largely due to our debt repurchases during the quarter. Cash flow from operations was approximately $1 million for the second quarter and total capital spending was approximately $1.3 million.

Our net inventory was $55.8 million which is a reduction of $4 million from the first quarter of 2010. For the second quarter of 2010, our net inventory represents inventory terms of approximately 7.3 times, which is a significant improvement from 5.7 times recorded in the first quarter. Our total net accounts receivable was $141.8 million while our AR day sales outstanding remained at 89 days.

Before turning the call over to Ron, I would like to remind our investors that we believe that they are better served by focusing on long-term trends as opposed to the short-term volatility that is inherent in the markets we compete in. With that in mind, based upon our current forecast for the remainder of this year, we are continuing to target our fiscal 2010 annual revenue range of $590 million to $620 million, which is unchanged from the beginning of this year.

While the first half of this year has been less than we originally expected, we do believe that with the second quarter improvements we are starting to see the anticipated growth in demand that was forecasted for this year. We do believe that difficult supply change issues will continue throughout the second half of this year, which will continue to make the environment somewhat challenging. As the final note, we are returning to our novel practice of providing annual guidance.

With that I would like to turn the call over to Ron Buschur, Powerwave’s President and Chief Executive Officer.

Ron Buschur

Thank you Kevin and good afternoon everyone. First I thought I would share with you some of my thoughts regarding the second quarter results and then my view on the current wireless infrastructure environment.

In terms of the second quarter, we are both excited with the progress we had made by introducing new products and solutions and pleased with our improved financial performance as well as the validation and success of our high value product solutions strategy. While our revenues grew over 26% on a sequential basis, we continue to experience longer then normal order lead times for a wide variety of electronic components.

I want to provide you with some insight into various components which have been significantly impacted due to supplied constraints. They range from microcontrollers manufactured by major semiconductor companies to release (1001) capacitors and various connectors in PC and PA boards. Not only have order lead times doubled and in many cases tripled from normal order lead times, the new lead time is in some cases up to 28 weeks. This along with frequent (inaudible) come from various suppliers as they try to ramp up their production capabilities further complicates our manufacturing processes and deliveries.

Now I want to point out while we don’t believe the situation has got any worse, we also believe that there has not been any significant improvement either. We also believe that these constraints will continue through the second half of this year. For the second quarter due to the supply chain issues, our revenues came in at a low end of our target range. We estimate that our revenues for the second quarter were impacted in the range between $10 million to $15 million due to supply chain constraints.

On the positive note, we have started to see increases in customer order activities across several markets, particularly in the North America market and in parts of Europe. In terms of our financial performance for the second quarter as Kevin stated earlier we believe that our strong financial performance further verifies the success of our strategy over the last three years. In particular, our manufacturing and consolidation activities have enabled Powerwave to be highly competitive in low cost manufacturing structures that is highly flexible and able to leverage. Our focus on expense management has positioned the company to be truly lean and mean where we can leverage our resources on a global basis.

And lastly our strategic focus on driving our sales towards integrated products and solutions which provide higher gross margins have had a positive effect this quarter. These products and solutions complement our strategy of not pursuing low margin commodity types of businesses. The products and solutions have helped drive our gross margins to the high end of our target range reaching about 29.5% for the second quarter.

Furthermore, I am very proud to announce that our pro forma operating margins for the second quarter reached 5.1%. Truly, we believe that we are focused on building a new diversified and more profitable Powerwave is working and we are on the right track. But make no mistake, we still have a long way ahead of us to fully achieve the long-term results that we believe are available to us. We need to continue to grow our core wireless business as well as further expand into additional market segments such as government and defense markets where we can create true solutions utilizing all of our technology and engineering expertise.

These changes will not happen overnight, but we have been advised by many experts in the government's research and scientific community that Powerwave has solid product strategy and a roadmap to deliver such results. We do believe that our excellent product portfolio, superior pattern portfolio statement-of-the-art facilities and cost effective geographic locations combined with what we believe is the best personnel across all disciplines is positioning Powerwave for long-term success.

I am very excited about the long-term prospects and progress regarding our government business unit, which we believe with the attributes I just mentioned, as well as a clear focus and commitment and the customer’s confidence will enable Powerwave to deliver mission critical solutions which are clearly needed in today’s challenging environment.

From the balance sheet perspective, we continue to improve our performance. For the second quarter, in spite of significant increase in revenues and the use of working capital to support that, we still generated a positive $2 million and on cash flow from the operations. While we maintained our DSOs at 89 days, we have also driven further improvements in our inventory turns, increasing them from 5.7 turns to 7.3 turns in the second quarter.

We also continue reducing our outstanding debt, repurchasing $3 million par value of outstanding notes during the quarter. As Kevin stated, we have been executing our restructuring and transformation plans for the company over the last three years and I am very pleased and proud of the job the team has done.

They are focused on consolidating and simplifying our manufacturing operations, our engineering sites and better utilizing our resources, decreasing our overhead cost, implementing our value, solutions strategy and creating a lower operating cost structure. We believe that we have succeeded in these efforts, in the financial results, product deals, product development lead times and the customer mix validates the success.

At the same time, we are continuing to invest in key resources, facility, state-of-the-art equipment and developing products and solutions which will enable our product and solutions technological leadership position to continue. We believe that these efforts combined with our previous actions will provide the leverage to improve our operating results, as well as to help further improve our ability to generate increased cash from our operations.

Now looking at the industry, while we believe there continues to be long-term drivers that will create additional demand for our products and our solutions. In particular, we believe that gain-driven demand, driven by rapid increase in smartphones worldwide, will continue to increase and create additional infrastructure spending globally.

The desire for IP-based solutions, mobile broadband and interoperability, as well as in-building coverage needs will continue to create opportunities for Powerwave to differentiate and demonstrate our technological leadership position.

We continue to believe that the wireless network operators throughout the world are looking for ways to improve their network performance with cost effective solutions like the one Powerwave Technologies provides. This has been demonstrated and validated with success of our LTE 4G product acceptance, which we have seen this year with multiple operator customers globally. We remain committed and determined to improve Powerwave’s profitability and performance for the remainder of 2010 and the years beyond. I would now like to turn the call over to the operator and address any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Steve O’Brien with JPMorgan. Please proceed, sir.

Steve O’Brien - JPMorgan

I guess I really like to understand a little better this strong second half guidance. If my numbers are right, Powerwave needs to do about $170 million a quarter in revenue. Can you give us a little bit more color on the geographies, it sounds like North America certainly will be stronger in the second half but any of the other geographies that you can point to? And then the mix I guess of revenue between both the products and sort of 3G, 4G, 2G.

Ron Buschur

Well, I’ll talk a little bit about the areas of strength. Certainly, North America we are seeing strong demand, continued acceptance of our new products and solutions, and that’s with multiple customers. We’ve had pretty good success as well in parts of Eastern Europe and we continue and expect that to continue here going forward, as well as there is demand and we believe in opportunity in parts of the APAC regions going forward as well. As far as mix, I don’t think we really get into breaking that out on a forecast basis, but we certainly are making sure that we try to lineup the supply chain and make sure that we have our manufacturing facility ready to ramp and still achieve the guidance that we had given for the year and we believe we’ll be able to do that assuming we get the supply chain parts and constraints alleviated.

Kevin Michaels

Yeah, this is Kevin. I’ll just add to that, as we have always said throughout this year, we expected it to see sequential improvements as we go through the year. So I think we Acuity want Ron, we still see that. And Acuity is last point too, obviously in the second quarter we saw some shortages continuing to impact us and while those supply constraints are still out there, clearly there is growth in demand and revenue opportunities for us out there.

Steve O’Brien - JPMorgan

Alright, if I could and just maybe pointing my question a little bit finer, do you expect the North America demand to be more 4G-driven or 3G-driven and then for Asia, would you say that, India 3G build is the biggest factor in the second half of the year? Or is there other up-ticks from China or other regions that you are factoring there?

Ron Buschur

Well, when we are looking at it, if you want to try to narrow it down to the 4G build-outs, clearly that’s where we are seeing the growth here in North America and that we anticipate to continue to see growth. We also have a very solid product portfolio around in-building solutions and we expect to see some benefits from one operator who has stated to desire to buildup multiple venues here in North America.

Looking in parts of Europe, we are expecting to see some of the 3G networks to continue to be built out, with some of our products and solutions. And I think you are dead-on in the APAC region looking at India and some of the delays or the acceptance and the license that have been issued now in India. We’ll start to see a build-out of the 3G networks there, as well as some WiMAX solutions.

Operator

Your next question comes from the line of Bill Choi with Jefferies. Please proceed, sir.

Bill Choi - Jefferies & Company

Thanks. I wanted to talk about the supply constraints a little bit more. Last quarter you guys talked about having some level of visibility into your revenue guidance because you’ve been properly allocated and then I guess in your prepared remarks, you talked a little bit about decommits from your suppliers, can you just talk about what might be going on there and what the risk of decommits as we go into third quarter is, and that the lead-times you were talking about from components, on a sequential basis, can you talk about what might have happened there? Is it extending or is it about the same?

Ron Buschur

Yeah well Bill, this is Ron. Looking at what we had forecasted going into Q2, we expected some supply to be brought back online from some of our suppliers and I think they had a difficult time maybe securing some of the capital and lead times that they needed on some of their components to meet our overall demand and when you look at the (decommits) I mean it’s across a broad base of suppliers because you have many other suppliers who have done what Powerwave and others have done over the last couple of years and that should take manufacturing capacity out of the market place to be at least financially viable moving forward. The lead times has extended and as you are probably aware they used to be anywhere between 8 to 10 weeks and now their 28 weeks.

On a sequential basis, we have seen some components extending about another three or four weeks this last quarter. So that makes our delivery concerns a little more difficult to forecast but as I said, we don’t see things get any worse going into Q3. We think we understand that, but it’s certainly something that we are struggling with as many I think have mentioned in their statements as well from a competitive standpoint are seeing the same type of issues.

We have confidence that we’ll be able to focus on the right products and right product mix that we can load our suppliers with a reasonable forecast to assure success and as I’ve said we probably left between $10 million to $15 million of backlog, leaving this quarter unable to deliver to our customers as well and that’s something that we want try to make up.

Bill Choi - Jefferies & Company

Are you able to talk about what’s happening to your own lead time to your customers and what do you think the risk might be of potential double (ordering) between you and competitors who might need the replacement whoever gets them the products first they are willing to then later decommit to any risk on that side that your able to figure out?

Kevin Michaels

Well Bill we don’t really think there's a risk to that right now because I think most of the competitive, competitors I should say not competitive, competitors in the market place are really under the same types of issues and supply. There’s common components that are utilized in all of our products that most of us deliver and I think we’re seeing very similar results across the supply chain and across our customer base. We have not seen customers canceling orders or receiving large fluctuation and forecast that leads us to believe that there is true demand there and those are not double booking and we’re also not seeing customers say your lead time is way beyond anything that we can live with or that we expect.

Clearly, we would like to be able to deliver more and we think the supplier who has the product available ultimately will be able to deliver the most volume to our end customers. But right now it seems to be pretty stable and we think our customers understand the challenges that we are under and they’ve been very supportive.

Bill Choi - Jefferies & Company

Great and lastly a quick clarification for Kevin, your tax rate, just given what we have for the first half, I just want to understand that to be within kind of that 15% to 25% guidance for the full year we are looking at about 10 to well actually more like 14% tax rate for the Q3 and Q4 time frame?

Kevin Michaels

Well, I think for the whole year we are looking at the total for the year of that 15% to 25%, what exactly it comes into each quarter it is hard to estimate, but that's our total forecast for the year and that’s what's the best information we have right now.

Bill Choi - Jefferies & Company

But I am just saying it drops often to 30% implied in Q2. Right?

Kevin Michaels

It should yes.

Operator

Your next question comes from the line of Scott Searle of Merriman Curhan Please proceed sir

Scott Searle - Merriman Curhan

I just first wanted to clarify 10% customers in the release you talked about Nokia on being over that net threshold, so lack of naming any other customers should we therefore interpret no more OEMs over 10%, no operatives were over 10% of revenues?

Kevin Michaels

We don’t have any other OEM’s over there, we do have one reseller in Europe that hit right at 10% but no other recognized OEMs.

Scott Searle - Merriman Curhan

Okay and the other thing that really stands out is on the gross margin front, tremendous job in the sequential up tick there, certainly a big chunk of that is explained by the mix in terms of direct operator versus OEM. I guess with that in mind, Kevin you mentioned that at the higher end of your range, why wouldn’t we see your gross margin targets and goals going up, is it a permanent shift in mix? Is this kind of one quarter type phenomena? Do you expect the operators to be overwhelming still going forward. And may be adding on that as well, coverage solutions, higher gross margins product, we still haven’t seen that pick up yet. I mean shouldn’t it be providing an upper bias as we go forward?

Kevin Michaels

Well, I think right now we’re comfortable sticking to our model target here. We still obliviously, the big factor we are trying to do is drive our operating margins. And we hit 5.1% this quarter. We want to drive that long term and as you know we certainly have been driving from a long term perspective to shift the mix. We obviously had a great mix this quarter. We think this will continue, but you know I think we want to be a little conservative in our views over the remainder of this year and I think longer term, obviously, our goal is to drive it higher but I think we’re still right now content with our range in the mid to high 20s and I think will stay consistent at the high end of that range.

One other thing just to note for you, I think on customers, I’m sure from an operator basis in North America, our overall largest relationships there with AT&T, we don’t necessarily sell everything directly there, so it doesn’t count as a 10% customer but we sell through their turf partners and such. So I think in that relationship it would deal over a 10% customer, it just doesn’t show up that technically.

Scott Searle - Merriman Curhan

Got you but Kevin again, given the visibility that you’ve got right now into the September quarter, you feel pretty good that the mix of direct operators are going to stay over that 50% level?

Kevin Michaels

Yes, that’s correct.

Scott Searle - Merriman Curhan

Okay and just if I could on a coverage solution side Ron, you mentioned some operator business there as well. Can you talk a little bit about how big the pipeline is on that front and if you are starting to get some positive outcomes in the next quarter or so, thanks.

Ron Buschur

You know Scott, if you look at the coverage solutions business, its usually typically large venues with build outs that extends anywhere from six months to 10 months depending on the size of the venues and its basically we've recognized the revenue as we complete certain phases of that build out for that job. So you see volatility and its very slight and we see a cycle associated with that but we feel very good about what we’re hearing from one of the large network of operators and what they plan on doing here in North America and if you assume what they publicly already told, I believe you and other analysts that they are looking to work towards a 1,500 venue build-out this year. I think Powerwave is in a very, very good position to benefit from a significant portion of that business to be allocated towards our solutions and products.

Operator

(Operator Instruction) Your next question comes from the line of Brian Modoff with Deutsche Bank. Please proceed, sir.

Brian Modoff - Deutsche Bank

Hi guys. In terms of these coverage solutions, so you are assuming you will see these orders, but you haven’t seen these orders yet?

Ron Buschur

No I didn’t say that Brian. What we said is there is a cyclical cycle associated with those, and we do have a certain number of venues already been assigned and we are working on those, but we certainly don’t have all 1,500 venues.

Brian Modoff - Deutsche Bank

Because it has been $10 million for the last couple of quarters. Obviously, this is higher margin business for you. Do you expect that to improve sequentially? And then in terms of the mix, antennas were awfully strong this quarter relative to the other two areas? How do you see that mix going forward into the back half of the year?

Ron Buschur

Well, we do, Brian, believe that the coverage solutions business does have a little bit better margins, but with some of these venues that we are currently bidding, they are asking us to be a complete turn-key provider, so we have to provide services and other support that we haven’t always done on some of these previous build-outs to where we’ve talked about doing the complete coverage. We just provided the product and the solution, not necessarily the service. So I wouldn’t expect to see a dramatic improvement with the margins because it’s blended with some of the service and support and commissioning associated with that. We did see strong sales in the antenna area with our LTE products, our TMAs, antennas has been very well accepted and we are seeing positive results on that, and I would probably expect to see that for the next couple of quarters moving forward.

Brian Modoff - Deutsche Bank

And then Kevin, could you kind of give us a rundown on kind of the situation with regard to your bonds. You’ve obviously bought some off more this quarter. What are your plans in that area over the next?

Kevin Michaels

Well really, our plans, there is no change. As you should know, last quarter we swapped out $60 million of votes coming due, those were pushed out of maturity date out to 2013, we went to the repurchase, we did this quarter, we are down to $68 million as of put date in November 2011. Our intention is to repay those as they come due or the opportunities to buy them back at a discount. We will continue to look at that.

Operator

Your next question comes from the line of David Marsh from McMahan Securities. Please proceed, sir.

David Marsh - McMahan Securities

It looks like the quarter is really, you don’t talk about EBITDA a lot of the company, but it looks like you had pretty meaningful year-over-year improvement in EBITDA with the gross margin improvement. Could you give us the D&A number in the quarter and can you talk about that story a little bit going forward?

Kevin Michaels

It’s around $4.5 million. The $5 million is depreciation and amortization number. The Q should be filed in a couple of days so the exact numbers will be in there. I just don’t have it right in front of me. But it’s right around that. But you are right. Our EBITDA is up strongly this quarter, and clear that is one factor. I mean, we do look at it as the management team and we are trying to drive that obviously, drive our profitability, and obviously the higher operating margins certainly contributes to that, and that’s something that is part of our drive for further profitability, is looking to improve that as we go through the year.

David Marsh - McMahan Securities

And then, I guess the one, the little bit of a net pick. In the quarter, your R&D was up a little bit sequentially and year-over-year, and is that kind a new run rate that we should expect kind of more towards the $15 million range or is that kind of a one-time increase that is going to be non-recurring?

Kevin Michaels

It's within a million dollars of our ranges, I mean we look at total operating expenses are around the $35 million range, that’s our target. We have already said they can fluctuate a million or two either way, but that’s the range and that’s where we are targeting in we are comfortable with that.

David Marsh - McMahan Securities

And I am sorry if you have mentioned it already, but what's the CapEx outlook for the October year.

Kevin Michaels

The remaining CapEx is probably somewhere between $4 million to $6 million for the remainder of the year.

Operator

Your next question comes from the line Amir Rozwadowski with Barclays Capital. Please proceed, sir.

Amir Rozwadowski - Barclays Capital

I am just following up on some inside on the in-building solution business. Obviously, one of your competitors in that space ADC Telecom is now going to be acquired by Tyco Electronics. I was wondering if you could comment on sort of how you view either the potential opportunities or potential challenges that may arise and obviously you folks are pretty excited about the growth opportunities there and then I wanted to see sort of what your take is.

Ron Buschur

Well, we are certainly very excited about the opportunities in that space. I don’t see the acquisition of ADC from Tyco as being a threat. In fact, there was very little talk about their in-building business, and as you know the products that compile their solutions or comprise their solutions set was really product set. We had looked at, that we are from LGC Wireless and haven’t been really a competitive threat in the marketplace, and in some of the larger areas recently to where we have been bidding on large DAS opportunities.

They really haven’t even showed up in some of those areas. Now what their plans are in the future Tyco, I really don’t know. But we certainly believe we have the right product sets and we think that’s an area that’s going to continue to grow. We see CommScope and Andrew in that space. They have a good solid position there, and we believe we can compete head-to-head with them and do quite well in that space.

Amir Rozwadowski - Barclays Capital

And then I was wondering if you could, I know you provided us a little bit color on India and some of the trends there. I was wondering if you could elaborate in terms of what you guys are seeing in terms of purchasing trends going out forward. I guess you expect some second half contribution. Has that been a gaining factor for you or do you see at that as potential opportunity maybe more in 2011? Have some of security issues become resolved?

Ron Buschur

Well, I guess it hasn’t become such an impact for us. We certainly know that there are some concerns about bringing products into India and getting the right qualified parts on their approved list to come into their country. But that hasn’t been a limiting factor for us. We believe that, that will be something that we should see some benefit as they pick up some of their spend and maybe even divert away from some of the vendors in the APAC region and focus it more towards US-based companies or European-based companies. So we think there is some benefit from that, we should be able to see going forward

Operator

You have a follow-up question from the line of Scott Searle with Merriman Curhan. Please proceed, sir.

Scott Searle - Merriman Curhan

Hey, good afternoon. Hey Ron, just a follow-up to some of your comments about verticals. You mentioned them in your opening statement. Is there a timeline or dollar amount that you are feeling comfortable about attaching to some of those opportunities in 2011?

Ron Buschur

Well, we certainly have multiple programs that we are working on with the vertical markets and that's the government markets and some of the military markets and as you know there is a cycle associated with development and releasing of those contracts. And I feel we are in a very good position to see by the middle of the year or by Q2 some pretty meaningful results out of that segment. But I really don't want to elaborate on the dollar amount yet because we are still in the process of finalizing some of the products and qualifications and I don't want to mislead someone may be its smaller than what I would give you today or it possibly could be larger and based on the response that we are seeing recently I think the latter's true. I think we have a very good potential to deliver some pretty compelling results, with that space.

Scott Searle - Merriman Curhan

Okay and on the remote radio head front, could you give us an update in terms of the interest levels, whether it’s with the operators or the OEMs kind of what you are seeing at this point in time?

Ron Buschur

Yeah, with the remote radio heads Scott, I mean I think and I don't have the exact number in front of me but I believe that we are probably core up through the likes of this quarter of that product. It probably shifts over 85,000 to 90,000 remote radio heads out in the marketplace. That's a pretty significant number of remote radio heads deployed. Its probably a pretty large percentage of the network is being built out here in North America as well as what was built out in Korea and is being utilized and currently deployed in Japan and that goes through some of the OEMs, the larger OEMs as well as we have a desire from several of the operators who are trialing our remote radio head in their networks today directly.

But keep in mind, until we get to the IP based solution or till we get to the next generation of technology, we still have to utilize the base band from the OEMs to be able to make this remote radio head function but we certainly are seeing a great acceptance for remote radio heads, more operators are designing their networks towards the remote radio head product or what they call macro (peak) types of applications in their networks to get that as throughput and to alleviate the bandwidth concerns that they currently have.

Scott Searle - Merriman Curhan

Ron, just for clarification most of this is WiMAX I take it right now and I know there's been a lot of interest on the LTE side. So when would you expect to see meaningful revenues or meaningful design win on the LTE side of the equation?

Ron Buschur

I would tell you right now certainly the bulk of what was shipped out of the remote radio head shipments that I had given you earlier were the WiMAX but the current products and the current generation of products are LTE compatible and they are being utilized in LTE networks.

Scott Searle - Merriman Curhan

Okay and one last question if I may, MSN with Motorola, how do you see the implications as it relates to you guys or is it less of a factor now given the success you are having in terms of going direct to the operators or what’s your interpretation in that overall event?

Ron Buschur

Well, we are positive with that event, because both Motorola and Nokia are two good very large OEM customers for us. We see it as a positive because when you look at the product sets around public safety and that government marketplace, we certainly have been spending a lot of time and effort building up that product portfolio and we believe that companies like Nokia and the combined Nokia-Motorola will certainly benefit from that and we do believe and we know from our current experience and the usage of the products in the Motorola offering today that this could be something that would benefit us. We don’t see it as a hindrance and we do think that as you know the government agencies, the military and the United States are certainly focused on the initiatives around homeland security and then interoperability which is a real concern between the agencies today.

Operator

With no further questions in the queue, I would now like to turn the call back over to Mr. Ron Buschur for closing remarks. You may proceed, sir.

Ron Buschur

I want to thank everyone for joining us today and your continued interest in Powerwave Technologies. We look forward to sharing with you our results for the third quarter of 2010.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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Source: Powerwave Technologies Inc. Q2 2010 Earnings Call Transcript
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