Posts tagged ‘Dragonwave’

Can You Spell “Vindication”?

I was just reviewing one of my predictions about the Wireless space from some months ago.  I took a lot of flack from some readers at Seeking Alpha for my suggestion that Clearwire (NASDAQ: CLWR) had issues, and that Dragonwave (NASDAQ: DRWI) had risen a bit too fast.

Yet over that period, the S&P has dropped about 8%, while CLWR has fallen more than double that amount.

Moreover, there were those that scoffed at my idea of a pair trade on the equipment suppliers:  buy Ceragon Networks (NASDAQ: CRNT) and sell Dragonwave.  It’s pleasing to note, however, that had any of them done so, there would have been a nice little pot of gold at the end of the rainbow.

Ceragon has lost 32% over the period, but that pales in comparison to DRWI’s drop of 47%.

Each time I’ve suggested Ceragon is a solid company with a bright future in a growing space, people have pooh-poohed the suggestion–for one reason or another.

I may be wrong someday but I’m still waiting.  In the meantime, vindication sure feels good.

Disclosure: I hold no position, either long or short, in any stocks mentioned here.

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July 22, 2010 at 9:08 am 1 comment

Clear: Still Foggy, Then Stormy

It’s been quite awhile since I looked in on Clearwire (NASDAQ: CLWR), and their big bet on WiMax.  Frankly, not much has changed.  I believed back then—and do even now—that WiMax is a technology solution that’s somewhat overhyped.

Clearwire is still spending money.  Intel is still touting it.   So is Google.  Meanwhile, WiMax is enjoying adoption primarily in emerging markets that have little entrenched infrastructure.  In the U.S.?  Not so much.  The recent macroeconomic environment can’t have been good for CLWR, as it needs capital to maintain any lead it has on incumbent cellular providers.  Meanwhile, LTE is starting to come on board with the latter, and large-scale deployments are not far behind.

WiMax may find its niche—at least in the U.S. — as more of a backhaul technology for wireless clouds (LTE or WiFi) owned by the large incumbent wireless carriers than anything else.  We’ll see.

The efforts of Sprint (NYSE: S) and CLWR is all that’s kept WiMax afloat here.  It still looks a bit like Clearwire sold a self-serving bill of goods to Sprint, who has long been desperate for a magic bullet to solve its subscriber defection problems.

Here, you try it.  No way, I’m not gonna try it, you try it.  Hey, let’s give it to Mikey.  He won’t adopt WiMax, he hates everything.  Hey Mikey!  He likes it!

Check out the chart on the right, courtesy of Gridstone Research.

Since eloping with Sprint’s network business, Clearwire has managed revenue growth of 19% year-over-year, based on 2008 pro forma numbers and 2009 actuals.  However, in that same span costs have swollen by 27%.  As a result operating income has dropped by 29% (from a negative number, mind you).  Just the spectrum fees that Clearwire pays amount to 95% of its revenue.

Wait, let me guess.  They’re going to make it up on volume.

So besides shorting CLWR, is there any way to play this puppy?  As a matter of fact, there is.  No matter what happens between WiMax and the other competing technologies, cellular firms will need increasing capacity on their backhaul links.  The iPhone and Android have seen to that.  For some, fiber will come to the rescue.  For others, a wireless solution is the only one that makes sense to boost backhaul bandwidth.  (Holy alliteration, Batman!)

And the clear leader in wireless backhaul is one of my favorites, Ceragon Networks (NASDAQ: CRNT), who coincidently just announced a new solution at the CTIA conference on March 23rd.  Sure, competitor Dragonwave (NASDAQ: DRWI) has come on strong in the last year, but they’re still too strongly tied to Clearwire, who is responsible for the lion’s share of DRWI’s business.  Ceragon is more balanced, having a number of large customers–including last year’s addition of Hutchison 3.

In fact, despite the recent relative falloff in Dragonwave’s relative price, the pair trade of long CRNT and short DRWI may still have legs.

Either way, marrying Clearwire to Sprint is like a perfect storm.  A technology with limited utility serving as the foundation for a network with limited subscribers.

Disclosure: I hold no position, either long or short, in any stocks mentioned here. However, I do receive limited free service from Gridstone Research, in return for mentioning them when I use data from their site.

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March 23, 2010 at 11:20 am 1 comment

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Scott J. Berry, NY area

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