Novatel Wireless: Connectivity to Your Car, Kitchen and Everything Else

 |  Includes: MIFI, SWIR
by: Tom Woods

"Appliances" that are "smart" have been promised since the Jetsons. But broadband-connected can openers aren't what's in development at Novatel Wireless (NVTL). We don't think so, anyway.

In its February 20 earnings call, top brass at the company alluded to "a number of new appliances" that will bring wireless connectivity to functions heretofore unlinked.

Chairman Peter Leparulo skipped the specifics. "But as you can imagine, they involve things like GPS navigation, MP3, video delivery, books, and thin client," he said.

Yes, we might have imagined as much. The finer details must be left to imagination as well, until the products begin arriving later this year.

"We expect a proliferation of devices on which content is currently delivered by some other means to move over to mobile wireless," said Leparulo.

"We believe these new mobile platforms will go increasing mainstream by end of 2008," he said.

Leparulo described them as "high-margin, higher-technology products" that are well into development in partnership with other companies.

"We believe our new mobile platforms for content delivery can fundamentally change our company," said CFO Ken Leddon.

"We will be introducing a number of new products in the second and third quarter of 2008. For these reasons, we are not providing specific financial guidance for the full fiscal year. However, based on our current visibility and customer feedback we fully expect to exceed $500 million (in sales) in 2008, even before factoring in these potentially large opportunities;" said Leddon.

The upbeat view nearly overshadowed projections of a sales decline for this year's Q1, now underway. The company expects revenue of $110,000 and GAAP earnings of 22 cents a share.

For the quarter recently ended, it earned 34 cents on sales of $118,000. Sales for 2007 totaled $430 million, which nearly doubled 2006 revenue.

The anticipated drop seems a mere speed bump--and nearly good news in itself--considering the company's explanation. Novatel's major customers including Verizon are opting to trim their vendor list to just two. The other remaining supplier most certainly is Novatel's chief rival, Sierra Wireless (NASDAQ:SWIR).

"The feedback we've received is that carriers recognize the cost of support and repair problems for low-performing devices quickly erases the benefits," said Leparulo.

Carriers must now fire-sale the old inventory, which will limit orders in the coming weeks. "Short-term, that may have some modest impact as carriers flush through competitors' products," said Leddon.

"Longer term, the benefits are obvious."

Novatel spoke favorably of recent moves by wireless carriers to lower the cost of wireless data delivery. Verizon (NYSE:VZ) this week dropped its base price $59 to $39

"We will benefit," said Leparulo. "It's a powerful move that increases our addressable market. We'd be happy to see other carrier follow suit.

"Our carrier customers are urging us to move into the lower end of the market more aggressively than we have. And they're pushing people into data faster than we are," he said.

Disclosure: Long NVTL