Alvarion: Best in Class WiMax Play Sparks Buyout Chatter

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 2^nd. Below are some “key takeaways” on the bull case behind ALVR:

● Leading WiMax enabler; solid relationship with Cicsco (CSCO), Alcatel-Lucent (ALU) and others.

● 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.

Comments

[DanielJacome]

several people have emailed us asking for the Register story...here is the link

www.theregister.co.uk/.../

Thx, DJ

[DanielJacome]

Enter your comment hereMy apologies: an astute reader pointed out to me that ALVR lost money in 2004, 2005, and 2006 on a strictly GAAP basis....

Please not that ALVR was EBIT positive in 2004 and 2005, but not 2006. The source I used for my article (investors business daily "daily charts") had the historical EPS numbers scrubbed in order to make them more comparable.

I should have more specific and/or simply gone with the GAAP SEC figures for net income.

Any further questions can be sent my way...Thanks, DJ

[DanielJacome]

ALVR was mentioned very positively in the newest S&P Outlook letter.....it came out this weekend....

www.netadvantage.sandp......

ALVR and WiMAX are both mentioned quite POSITIVELY in this article, which I believe is sent out to hundreds and hundreds of institutional and retail accounts alike...

This could help us recover the 3% hit from last week.

[DanielJacome]

here is the correct link, you may have to be a subscriber to S&P....

www.netadvantage.sandp...

[DanielJacome]

If CSCO grabs Navini, it leaves ALVR open for MOT......just a thought

[DanielJacome]

looks like a hatchet job by thestreet.com -- ALVR is up 2 days in a row after they tried to take it down with the CSCO/navini stuff.....ALVR is a good company, that is all that matters....I think we shook the tree and got the iguanas out, alas.

[DanielJacome]

ALVR reports on Wed -- Halloween. Whisper is 6c, which is 2c > Street. They'll need to guide Q4 sales > 67M-68M for the stock to float.

Moon or bust: bad EPS and it sinks to 12. Good beat and raise Q and we are in the 15 and higher range.

[DanielJacome]

ALVR reports on Wed -- Halloween. Whisper is 6c, which is 2c > Street. They'll need to guide Q4 sales > 67M-68M for the stock to float.

Moon or bust: bad EPS and it sinks to 12. Good beat and raise Q and we are in the 15 and higher range.

[DanielJacome]

it was bust, ALVR only guided in line, so the stock sank like a stone. We remain long and look to sales and operating momentum/leverage as the basis of our investment thesis

[DanielJacome]

Well, this was one we got wrong in the short term -- we got stopped out a while ago, and it is a good think. CLWR and S came out today and pooped on the whole WiMAX "thang," sending shares of CLWR through the toilet. ALVR naturally lost another 5%.....

One to watch, but we are sitting on cash until the financials stop bludgeoning us.....

[DanielJacome]

CLWR/S talks again, ALVR will near term upside. We got stopped out in 12-13 range last Fall and currently staying away. The struggle for fatty margins will be ugly....