Piper Jaffray is out with a cautious call on Novatel Wireless (NASDAQ:NVTL), saying that based on comments at QUALCOMM Analyst Day and discussions with QUALCOMM management, they believe new Gobi embedded solution is gaining more traction than previously anticipated. As a result, they are lowering their PC-related embedded module estimates for 2H08 and 2009, resulting in reducing estimates and price target on NVTL.
Notebooks featuring the multi-mode Gobi solution will have access to the high-speed mobile Internet services offered by network operators in virtually all parts of the world as the solution supports both CDMA2000 EV-DO and HSPA networks worldwide.
Based on comments at QUALCOMM Analyst Day indicating Gobi should ship in volume at a very competitive price by mid-2008, PJ believes this solution will facilitate increased competition for Novatel's embedded module segment. In fact, they believe the common software API and reference design for a software-defined configurable data module supporting both EV-DO Rev. A and HSPA with full backward compatibility, will enable price leaders to enter the market and lead to intense price competition.
Further, discussions with QUALCOMM management indicated strong early momentum for Gobi, with a design win at HP in-hand and strong interest from numerous other tier 1 notebook OEMs.
PJ is lowering their 2008 proforma EPS estimate from $1.45 to $1.38 and 2009 proforma EPS estimate from $1.55 to $1.29. Price target is cut to $19 from $26.
Notablecalls: Gobi was introduced on Oct 23, causing a sharp sell-off both in NVTL and SWIR. So, in that sense PJ's call does not highlight any new negatives. But it does bring the competitive problems to the forefront. PJ's not the only one out with cautious comments this AM. Deutsche Bank notes that revisiting last month's announcement on their Gobi platform the company expects to ramp up shipments of its embedded laptop module.
They see this as a drive to bring down the cost of embedding data connectivity and as a competitive to step to fend off WiMAX. This is a smart move, but one that is likely going to make things difficult for Novatel and Sierra Wireless, in DB's view.
All in all, I think there may be some more downside in NVTL following PJ's call. Just a short scalp, though.