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Mark Gomes
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  • Alvarion: 10-Bagger Or Bust? 15 comments
    Jul 2, 2012 10:20 AM | about stocks: ALVR

    Last week, I had the pleasure of catching up with Alvarion (ALVR) management. From what I gathered, a few things are clear:

    • The company's Board made significant changes to the management team to turn the company around. These actions were capped with the recent (re)hire of Hezi Lapid as its new CEO.
    • Together with CFO Lior Shemesh, Lapid's plan is to "stop the bleeding". The duo have been examining every aspect of the business to eliminate all unprofitable activities.
    • Clearly, its WiMAX business is the open wound. This is a business with $1 billion of equipment installed worldwide. With that much sweat equity, profitability should be very doable. It just needs the right business model and management.
    • In my opinion, NewNet could be the answer. NewNet recently acquired its way into the WiMAX business. Its management team believes that WiMAX is far from dead. If they're right, NewNet would stand to make a killing from acquiring ALVR's WiMAX business. Consolidating ALVR into its existing WiMAX business would deliver economies of scale, a consolidated operating structure, and an enormous installed base.
    • In the meantime, ALVR management is looking to stabilize the business. It no longer plays in deals where financing and margin is an issue. This will surely result in less revenue, but more importantly, it should cut losses dramatically, provided that management right-sizes its operating structure.

    Personally, I see a binary outcome. ALVR will either right the ship quickly or shareholders will quickly get diluted into oblivion.

    In the first scenario, management will succeed in their goal to achieve positive cash flow from operations by Q4. This will require a decisive attack on expenses, while ensuring the surviving employee base that their futures are secured as a result of the downsizing.

    Also in the first scenario, management will find a buyer for its WiMAX business, leaving ALVR as a pure-play in the fast-growing WiFi market. Comps in this space are selling for as much as 6-8x revenue. Thus, Wavion (which was bought by ALVR as a fairly distressed asset) could be worth $180-240M based on expectations of $30M in revenue this year. A full valuation could be justified by Wavion's market share trajectory, which has been growing rapidly since being acquired by ALVR.

    In the second scenario, management will not act decisively enough to cut expenses. This will lead to multiple headcount reductions, leading to weaker employ morale. This will also lead to greater losses. Thus, barring the sale of its WiMAX business, a weakened ALVR will be forced to raise cash (perhaps multiple times). In the end, common shareholders might realize a total loss on their investment.

    Which way will it go? Only time will tell. One thing is for sure - with a market cap of just $24 million, investors are risking very little for the chance at reaping a 10-bagger (from today's $24M market cap to the potential $240M market value).

    Given Hezi Lapid's track record of success, this feels like a 50/50 bet. Offer me 10-to-1 odds on a coin flip and I'll take the deal every time. Accordingly, I have a large position in ALVR and will consider increasing my stake opportunistically.

    Disclosure: I am long ALVR.

    Additional disclosure: Mr. Gomes' position is subject to change at any time without notification. All investors should read Mr. Gomes' "Stocks To Triple Instruction Manual" before acting on his investment ideas: seekingalpha.com/instablog/84364-mark-go...

    Themes: long-ideas Stocks: ALVR
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This post has 15 comments:

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  •  
    This is my update on ALVR, as promised...

    FYI, I remain in Europe (assessing the situation here, country by country), at least until mid-August. As such, my ability to respond to questions will be very limited.

    Thanks for your patience while I wade through the EU facts and fiction.
    2 Jul 2012, 10:21 AM Reply Like
  •  
    Hey Mark, do you still like SMSI or ZHNE?
    2 Jul 2012, 10:40 AM Reply Like
  •  
    Mark,
    I agree with your assesssment. I am less worried about dilution from raising cash at current stock levels than the delisting which I believe currently accounts for more of the severe stock price,than fundasmentals. I believe investors are staying away nearly regardless of business improvements with this could overhanging because the company hasn't even said what, if anything it plans to do about this. Saying nothing leads to the increasing potential of a reverse split which would kill the stock even more.
    3 Jul 2012, 03:56 AM Reply Like
  •  
    Fortissimo Capital is looking to obtain a 50% stake in the company.

    http://bit.ly/O6HvRL
    4 Jul 2012, 07:28 PM Reply Like
  •  
    Let's hope Alvarion management doesn't give itself away at the current share price....bad for current investors due to massive potential dilution if all is done in common shares
    5 Jul 2012, 08:40 AM Reply Like
  •  
    Israeli website reports that ALVR are negotiating with an Indian company about the possibility of selling the WiMAX business for $15M. I think this is a better option than selling Fortissimo a 50% stake for the same amount.

    http://bit.ly/NaazLm
    9 Jul 2012, 01:13 PM Reply Like
  •  
    Yes, a much better deal than the 50% of the en tire compamny and controlling interest to Fortissimo. That would have been very detrimental to shareholders because the new board controlled by Fortissimo could have done whatever they wanted without approval by outsider approval..very bad for shareholders.
    G
    10 Jul 2012, 10:04 AM Reply Like
  •  
    Hello Mark. I was searching seeking alpha for news/commentary on a few of my stocks and noticed a couple of your articles on Alvarion. What do you make of the current situation? Unfortunately I bought in this past February on the rumor of the company being sold to DVTel for $50 million. Now the stock is down a few bucks and I am not sure what to do. It seems like the various boards are positive on Alvarion's Wavion acquisition, but not sure if it's a little too late to benefit shareholders.

    Anyhow, I would really appreciate you giving me your thoughts on Alvarion. I noticed that you are long (at least as of your last alvr article) the stock, so I would be grateful to know how you currently rate the stock. Thanks!

    Warm Wishes,
    Matthew
    25 Apr, 03:26 AM Reply Like
  •  
    Supacharja

    We currently have no rating on the stock. ALVR was one of our duds -- it happens!. Per our Stocks To Triple Instruction Manual (seekingalpha.com/inst... we waved the white flag after a 20% loss.

    We could revisit it, but "fool me once" is another rule we tend to follow...

    Kindest Regards,

    Mark G.
    25 Apr, 01:01 PM Reply Like
  •  
    We were following. Alvarion for a long time and were out when Lapid came in to restructure and came back in when it ann9ounced it would sell tghe licenced buisiness and continue the rest (Wavion) products which target a high growth industry segment. But when Lap8id suddenly resigned without even an interim appointment it signaled more turmoil and we went out again, at a loss but ptrobably for ther final time. There has to be stable leadership regadless of how good the products may be. A very unfiortunate story . the reverse also was badly handled as the low nukber of shares keeps large investors out.
    25 Apr, 01:38 PM Reply Like
  •  
    teelcom engineer, author on investment ethics and lecturer
    25 Apr, 01:40 PM Reply Like
  •  
    Very well said, Gunther. It happens, though. I still believe ALVR was worth the gamble. It just didn't pay off...
    25 Apr, 01:49 PM Reply Like
  •  
    Mark,
    I agree it was worth the gamble also because the company seemed to finally be refocused on the right niche, still retained a significant distribution channel and enough financial resources. But to announce the CEO is leaving with him remaining as CEO until a successor is found right after the reverse split when positive news is needed to prevent another tanking reflects serious internal turmoil and potential more mis steps. The Board should have sold the rest of the business realizing the goal should be to preserve shareholder value rather than risk whatolittle there was left. Regards..Gunther
    26 Apr, 10:17 AM Reply Like
  •  
    Agreed. This is part of the reason why I utilize a 20% stop-loss on my picks from the initial purchase price. If the stock drops 20% from whem I buy it, it's almost always a dud. Losing 20% on the duds is potatoes compared to the gains from the winners that double, triple, or more :)
    26 Apr, 11:57 AM Reply Like
  •  
    I am http://bit.ly/10IBUxA
    27 Apr, 10:24 AM Reply Like
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