In just as many days, two articles regarding a potential buyout of Alvarion (NASDAQ:ALVR) have materialized (First on Unstrung.com, then on The Register). Alvarion, an Israel-based provider of WiMax equipment and accessories, holds a $916M market cap and has been profitable since 2004. The fund I manage has been opportunistically buying ALVR whenever the stock dips under $14.50. Risks of WiMax hitting critical mass notwithstanding, we think ALVR is an exceptional bet on an emerging technology that will soon hit its long due inflection point. We feel very comfortable owning the name ahead of earnings, due November 2nd. Below are some “key takeaways” on the bull case behind ALVR:
● 51% gross margin + cash flow positive
● $122M in cash + no debt
● Carriers are increasingly committing to WiMAX technology: Sprint/CLWR are spending $8- $10B on Wimax when just years ago, most telcos were dismissing WiMAX altogether; Sprint wants to cover 1/3 of its network by 2008
● Management has guided either in line or higher on the last five cals, a trend we think will continue as WiMAX ramps into higher gear by 2H08
● Pure growth mode: Wimax infrastructure related spending is running at a 2007-2011 30% CAGR; ALVR is just one of 3 publicly traded plays on WiMAX, which can help the multiple expand on top of earnings power since there is too little float meeting too much demand.
● Offerring up to 4x the bandwith of rival techlogies, WiMAX seems to be the “best fit” for our increasingly digital and portable lifestyle.
● Hedge fund Renaissance Technologies, arguably one of the best quant shops around, is Alvarions’s largest holder and added to its postion in the last quarter.
● ALVR as buyout target: with such a miniscule market cap, the company would be a “drop in the bucket” for companies that have explicity come out and stated that they are all moving towards WiMax development, even if it means acquiring the technology: CSCO, Sprint (S), and AT&T (T) all come to mind.
● Wimax is an improvement upon WiFI, which is that wireless broadband connection you get at Starbucks and major airports. WiMax utilizes licensed radio spectrum, which immediately differentiates WiMAX from WiFi or other wireless services that use un-licensed radio frequencies. Because a WiMAX network operator is licensed a la a radio station, it is able to drastically mitigate interference.
● Traditional telecommunications infrastrucuture is clearly ailing: during the Katrina crisis, the US government learned just how inefficient our current infrastructure was.
Disclosure: Dan Jacome was long ALVR at the time of publication.