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DragonWave hanging onto Nokia Siemens lifeline

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DragonWave announced a year-over-year trebling in revenue for the third quarter of its fiscal year, but the company's quarterly loss grew by $5 million.

The Canadian company, which provides packet microwave radio systems for mobile and access networks, said that during the third quarter of fiscal year 2013, which ended Nov. 30, 2012, it lost $13.9 million on revenue of $38.5 million. One year earlier, DragonWave reported a loss of $8 million on revenue of $11.8 million. The gross margin for the third quarter of fiscal year 2013 was 19 percent, compared with 41 percent in the third quarter of fiscal year 2012.

DragonWave has struggled over the past couple of years due to heavy reliance on Clearwire (NASDAQ:CLWR), which curtailed its investments in microwave backhaul when it stopped rolling out its WiMAX network in preparation for a migration to TD-LTE. DragonWave now has one customer, Nokia Siemens Networks, which generated more than 10 percent--$25.6 million--of DragonWave's revenue during the third quarter of fiscal year 2013.

"While visibility into our revenue pipeline has been challenging, we have continued to work hard on completing the integration activities of our strategic partnership with Nokia Siemens Networks to position ourselves for growth," said DragonWave President and CEO Peter Allen. "These efforts combined with our continued focus on cost reduction are targeted at achieving a profitable business model."

DragonWave bought most of its microwave transport business last year from NSN, the networking unit of Nokia (NYSE:NOK) and Siemens. Under an amended agreement announced in May, Ottawa-based DragonWave became the preferred strategic supplier of packet microwave and related products to NSN. DragonWave also entered into a services agreement with NSN for outsourced R&D, product management, sales support and operations functions.

Under the amended pact DragonWave was no longer required to take over NSN's Italian operations, though it was anticipated that at the end of the service agreement, NSN's microwave transport assets in Italy could still potentially transfer to DragonWave. However, chances of that transfer appear to have been derailed for the time being as NSN is undergoing a major restructuring in Italy, prompting labor unrest.

"In early January 2013, unions representing this group of Nokia Siemens Networks' workers notified us that a strike had been commenced for all microwave transport people on related global functions in Italy," said Allen, according to the Seeking Alpha transcript of DragonWave's Jan. 10 earnings conference call. "We are adjusting our other resources in China and Canada to adapt to this, and we are in discussions with Nokia Siemens to assist them as they address this issue."

DragonWave anticipates its revenue for the fourth quarter of fiscal year 2013 will be $40 million to $45 million.

For more:
- see this DragonWave release
- see this Seeking Alpha transcript (sub. req.)

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