Cavium Networks Acquires Quality Assets at Cheap Price in Turbulent Sector

| About: Cavium Networks, (CAVM)

Cavium Networks (NASDAQ:CAVM) acquired most of WAVESAT’s assets for $10M. WAVESAT was requiring protection from bankruptcy laws. According to Rethink Wireless:

The fit between a specialist in basebands for 4G devices, and a supplier of carrier grade network processors, is not obvious, but Cavium is given to making offside acquisitions to increase its differentiation in the increasingly standards-based world of operator infrastructure. In November 2009 it bought Mobile Linux firm Montavista, another company traditionally focused on devices, but it brought its new parent a boost for its own Carrier Linux activities - as well as countering Intel's purchase of Wind River.

Cavium acquired the digital signal processing expertise of WAVESAT in OFDMA-based technologies - WiMAX, LTE and Japan's XGP. WAVESAT was one of the first players to see the vital importance of building strong ties with the Taiwanese ODM community to extend the standard's ecosystem. It faced recent competition in WiMAX products by Beceem and Sequans, as well as Intel (NASDAQ:INTC) on the laptop side.

In 2010, WAVESAT released its own LTE product, announcing a tri-band reference design for handsets, dongles and CPE equipment. This was based on its Odyssey 9000 silicon platform, which also supports WiMAX and XGP. WAVESAT was the first chip designer to offer a multiple protocol strategy allowing a single silicon platform to run WiMAX, XG-PHS, and LTE.


Basic data


Head office


Sector of activities

Technology platform

Employees (total)





Montreal, Quebec

Several key institutional and private venture-capital funds

Fabless semi-conductor chip designer

Fixed and mobile Wi-MAX


Less than $50 million

Private and public organizations

Mainly international: Asia, East Europe and USA


WAVESAT is a fabless semiconductor company developing Wi-MAX chipsets, software and reference designs, enabling OEMs and ODMs to be first to market with high performance and cost effective Wi-MAX compliant solutions.


WAVESAT is designing chips for both fixed and mobile Wi-MAX markets.


- WAVESAT relies on a few big players to penetrate new markets.

- The company is focusing initially on core developing markets and eventually more on industrialized markets.

Benefits and issues

With the help of its key partners, WAVESAT is building a Wi-MAX ecosystem among telecommunications operators and new entrants.

Business Strategy

WAVESAT has a diversified business history in delivering, supporting and servicing telecommunication manufacturers with satellite and mobile amplifier units. WAVESAT’s competitive advantage resides in promoting cost effective platforms to accelerate Wi-MAX adoption in the customer premise equipment market.

WAVESAT's current customer base is drawn from the United States, Eastern Europe, China, Taiwan, India and Korea and consists of wireless OEMs, Asian-based ODMs, and major infrastructure providers. WAVESAT also partners with industry leaders.

Wi-MAX is favoring the convergence of technologies and services. It increases the triple play initiatives in voice, data, and video since Wi-MAX is applicable at the top of the Internet Protocol, which is not the case for 3G-3.5G networks. Wi-MAX has a great potential as a substitute to DSL or cable modem when those technologies are not available in certain areas.

In North America, contributing to the diffusion of Wi-MAX is the proliferation of dual mode chips that are Wi-Fi and Wi-MAX compatible to be used in fixed-mobile convergence phones, handsets compatible with 3G, 3.5G networks and also Wi-MAX. Those handsets are intelligent enough to connect automatically to the cheapest network available in a given area.

The most promising Wi-MAX markets for WAVESAT are the countries that do not have vast 3G and 3.5 G network deployment and have rapid population growth, such as the “BRIC” (Brazil, Russia, India, Indonesia and China). Wi-MAX is a complement and not a substitute to technologies such as 3G, 3.5G, or 4G. These competing technologies will continue to be used in order to upgrade existing infrastructures in place.

Obstacles to the adoption of WI-MAX

Sprint Nextel (NYSE:S) invested several billion dollars in a Wi-MAX national US network. According to this company, Wi-MAX can deliver four times the amount of data at one-tenth of the cost of the 3G 3.5G technology. However, this huge cost saving will only appear when high volumes of Wi-MAX penetration are obtained, i.e. not before several years of deployment.

Not many companies are able to do so. Mobile Wi-MAX networks require high capital expenditures and wireless operators already invested massively in very costly 3G-3.5G-4G license acquisitions (more particularly in Western Europe). Such operators are not in a hurry to invest in a new network. However, new entrants may push incumbent wireless operators to implement Wi-MAX networks.

Another obstacle in the adoption of a new network/technological standard such as Wi-MAX is the position of dominant manufacturers. As these companies have a vested interest in 3G and 3.5 platforms that were developed in their R-D facilities and still have a huge financial clout, they are able to promote the adoption of their standards by providing attractive financing to telecommunications operators.

Product Development

WAVESAT does system design and offers support services. It is characterized by a high R&D-to-sales ratio, a very short product development cycle, and a short life duration of products. The company is engaged in a massive R&D effort (over 80% of its sales) to stay at the cutting edge of the industry. But WAVESAT does not manufacture its own semiconductor wafers: it is a fabless chip designer that relies on Original Equipment Manufacturers (OEM) and Original Devices Manufacturers (ODM) to mass produce its chips.

Since WAVESAT is a small player, the building of a technological ecosystem is critical. A large part of the company's activities goes to the development and promotion of international Wi-MAX standards. Another way to foster the creation of a Wi-MAX ecosystem is to team with powerful business partners such as as Siemens (SI), Texas Instruments (NYSE:TXN) Freescale (NYSE:FSL) and Analog Devices (NASDAQ:ADI).

WAVESAT was awarded the 2005 Frost & Sullivan's Technology Leadership Award for the Evolutive Wi-MAX DM256. In addition to being the first company in the world to work with OFDM chips, WAVESAT's chipsets are the most efficient, delivering superior performance in harsh channel conditions and reducing cost of RF implementation.

WAVESAT was also awarded a 2005 InfoVision Award for the design of the Evolutive Wi-MAX DM256 Series in the category Enabling Silicon and Component-Level Technologies.

Industry trends

  • Wi-Max faces severe competition from LTE as the dominant standard in 4G. Wi-Max is more a niche product and a complement.

  • Sprint Nextel is losing faith in Clearwire’s (CLWR) Wi-Max network. Clearwire’s founder and Chairman Craig McCaw resigned as the CEO.

  • Consolidation is taking place in the Wi-Max chip sector: Broadcom (BRCM) bought Beceem last year, and Intel acquired Comsys Mobile.

Company Name

(Ticker Symbol)

Market Cap.


TTM Revenue


Net Margin


Price 52-Week High





Cavium Networks, Inc.








Cavium Networks has no debt and a P/E ratio of 49x at the actual price of $37.77. Its revenue growth is based mainly on convergence acquisitions in related sectors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Tagged: , Semiconductor - Broad Line
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