On Monday, the Tech Insider site, Unstrung, wrote that various sources are pointing toward Cisco (NASDAQ:CSCO) undertaking an imminent M&A in the WiMAX space, and the most likely candidate is Navini Networks. This is very interesting.
Unstrung’s analysis is based on a ThinkEquity analyst’s piece that was published on September 28th. In the piece, analyst Anton Wahlman posits two interesting pieces of information:
In the first point, ThinkEquity’s thesis is that WiFi, something Cisco knows a lot about with its Linksys acquisition, and WiMAX go together, much like enterprise and public networks (muni and cellular) are all blending together. Cisco, of course, realizes this, and its next move would have to be a seminal acquisition of a WiMAX public networks company. Here’s a link to more about CSCO’s WiMAX ambitions.
The second point requires some analysis. Why would Cisco choose to go with Navini? Well, there are a couple of reasons. The first reason is that Navini has “beamforming technology” (see Wikipedia on beamforming here.), and ThinkEquity believes that this is critical in order to achieve the best performance. Navini also has deployed this technology in several good markets (FL, LA, and GA), with AT&T (NYSE:T). Navini has also made good progress on the 802.16e standard. So, in essence, ThinkEquity believes that beamforming makes MIMO technology really useful.
If Cisco were to purchase Navini, it would mean bypassing Alvarion. Clearly, the WiMAX opportunity is huge. There are probably 1000 operators who will spend $10M to over $100M each rolling out WiMAX in the next two to four years, and ThinkEquity believes this market opportunity is worth $10B-$100B+.
If Alvarion plays its cards right, building off its best-in-class execution of a WiMAX centric plan with the world’s system-level equipment suppliers, some analysis points to the fact that it could capture 5%, or more of market share in this space. This could mean anywhere from $500M - $5B in revenues. Alvarion currently sports a market cap under $800M with a net-cash position of almost $2/share.
Alvarion has the largest installed based of fixed WiMAX deployments (170 out of 350 worldwide), and is the only vendor currently shipping mobile WiMAX ready base stations. Mobile WiMAX itself is purported to grow from 0 today, to $5B in 5 years. There are a lot of opportunities for ALVR on the horizon, both near and far.
Clearly, Alvarion is a key thematic investment in the entire WiMax roll-out, and if ThinkEquity is right (i.e., WIFI and WiMAX will deploy in blended format), ALVR will leverage its exposure to FMC (fixed-mobile convergence) as cell phone companies make headway in the inefficient wireless telephony architectures for a majority of all calls made/received.
CSCO seems to be making a technology bet if they scoop up Navini — a move that will give them a strong, but not dominating presence in WiMAX. I’d rather put my chips on ALVR, and its business and financial operating history, complete with cash on the books, and no debt. Regardless, if CSCO does decide to move forward into WiMax with an M&A of Navini, it provides a huge seal of approbation for WiMAX, and it means that a huge player, previously lukewarm to the idea, is getting serious about it.
Regardless of the eventual outcome, Alvarion should benefit by any action that is taken.
Disclosure: The author’s fund has a position in ALVR as of October 15, 2007.