Harmonic and Alvarion Benefit from Telecom Momentum

Includes: ALVR, HLIT
by: Shlomo Greenberg

The results of tender no. 66 of the Federal Communications Commission [FCC] for the allocation of 1,122 licenses (of which 734 are cellular) for various spectrums indicate that the experts were wrong in every way concerning relating to cellular lines. Were it not for these experts, investors could have perhaps bought shares in telecommunications companies large and small for a pittance. After having been intimidated to such an extent four years ago by the experts who claimed that demand for telecommunications would come to a halt, and that leading companies would suffer massive losses, investors made a run for their traditional shelters, thereby missing the opportunity to buy shares such as ECI Telecom (Nasdaq: ECIL) for $1, or Comverse Technology (Nasdaq: CMVT) for $6.

At the end of July, $12.6 billion competed for new telecommunications lines across the US. Initially they expected $2 billion, and then $6 billion, and finally the FCC found itself with $12.585 billion. The FCC first began issuing tenders for the sale of electromagnetic spectrum licenses in 1994. Five bidders offered more than $1 billion each. Deutsche Telecom (DT) subsidiary T-Mobile is the leader with bids totaling $4 billion, followed by Verizon (NYSE:VZ) with bids totaling $2 billion.

These tenders prove that the various telecommunications fields are heating up, and soon everyone will have forgotten the massive losses that telecommunications caused us all back in 2002. So I just wanted to remind you all not to forget this and exercise caution.

A couple of days ago, Harmonic Inc. (Nasdaq: HLIT), a developer of wireless and optical infrastructures including video-on-demand [VOD], announced it would acquire Entone Technologies of San Mateo, California. Entone is a privately-held company, which develops software for broadband-based video transmission. After Cisco Systems Inc. (Nasdaq: CSCO) announced it was acquiring Arroyo Video Solutions Inc., the move by Harmonic points to the beginning of a consolidation in the VOD field.

The interesting thing here is that Entone has an OEM agreement with Siemens of Germany, under which its system will be used in Siemens’ video systems. Harmonic has risen 45% since the last week of July. This is interesting since Alvarion (Nasdaq: ALVR) has also gained 45% during the same period.

If you look at wireless infrastructure companies, you will find that most of them have made handsome gains, and all of these started in July. I think there is a twofold reason for this. First there are the tenders that I mentioned earlier, and then there is the WiMAX crusade. In her article of August 16, CNN correspondent Nicole Ridgway referred to a study conducted by Sky Point Research, which revealed that Alvarion currently owns 81% of the WiMAX equipment market. True, this market is still small, but if Intel Corp (Nasdaq: INTC), Sprint Nextel Corp (NYSE: S), and Motorola Inc. (NYSE: MOT) continue their campaign, there’s no way of knowing where it will lead. “Being in the middle of such a hotspot is why I wouldn’t be surprised if Alvarion entertains a takeover offer or two from one of the large equipment vendors like Nokia Corp. (NYSE: NOK) or Nortel Networks (NYSE: NT),” says Ridgway.

ALVR, HLIT Last Six Months

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.

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