Alvarion may ditch WiMAX due to plummeting revenues

Alvarion, one of WiMAX's biggest champions over the years, looks ready to exit the business, potentially stamping a black mark on the entire ecosystem.

In disclosing Alvarion's first-quarter 2012 financial results, Hezi Lapid, president and CEO, said the company is exploring "a variety of options for the carrier-licensed business," which is the new name the company has given to its WiMAX unit. Saying the unit holds "significant and valuable assets," Lapid said, "Every alternative we are evaluating will provide continuity of products and services to our customer base."

Alvarion's statements could be potentially devastating for the WiMAX industry, which has failed to keep up with the market momentum surrounding LTE. "As essentially the only publicly-held WiMAX pure-play, Alvarion has been a torch-bearer for WiMAX; its de facto surrender in the space may signal one of the final votes of no-confidence in the ecosystem, which could hamper sales of WiMAX gear sector-wide by staining the WiMAX brand," Ed Gubbins, analyst with Current Analysis, wrote in a brief.

One a positive note, if the WiMAX industry survives this blow, remaining vendors could stand to benefit from Alvarion's exit. NewNet Communications Technologies, which acquired Nokia Siemens Networks' WiMAX business in February, might be able to pick up Alvarion's customers or even buy out the company's WiMAX unit. However, in tacit acknowledgement of LTE's rise, NewNet has made it clear that it stands ready to help its WiMAX customers evolve to LTE if they desire.

Alvarion and NewNet both declined FierceBroadbandWireless' requests for comments on Alvarion's WiMAX divestiture-related statements.

Israel-based Alvarion's apparent rush to get out of the WiMAX business was prompted by what it acknowledged was an unexpected revenue shortfall. In the first quarter of 2012, the company's revenues were $33.3 million, a decrease of 28.4 percent from $46.5 million in revenues recorded a year earlier. Its GAAP net loss for the first three months of 2012 was $6.9 million, an improvement over the GAAP net loss in the first quarter of 2011 of $14.5 million, including restructuring and other charges of approximately $7.1 million related mainly to employee termination expenses and vacating office space.

Alvarion may have harmed its own prospects with its statements about the future of its WiMAX unit as "existing WiMAX customers may be spooked by the company's statements about potentially divesting the business, thus exacerbating the company's financial woes," wrote Gubbins. This could be especially problematic given that WiMAX still contributes half of Alvarion's revenue, money the company needs to help built the Wi-Fi and DAS businesses that it has targeted as growth areas.

On April 25, Alvarion was granted a temporary forbearance of breached covenants and reached a general agreement with its principal lender to modify the terms of a loan that the company used to finance the acquisition of Wi-Fi vendor Wavion in November 2011. Alvarion said the current outstanding balance under the $30 million three-year loan is approximately $28.6 million. The loan modification agreement provides that Alvarion will repay approximately $7 million of principal in addition to its normal loan payments by July 2012, after which the outstanding balance of the loan is expected to be approximately $20 million. The company is also paying a moderately higher interest rate on the loan, per the renegotiated agreement.

Gubbins said an especially worrying fact is that Alvarion's management "is acting from a position of weakness, admitting to having been surprised by the recent drop in demand for older products and announcing a possible divestiture instead of a real transaction, which may diminish returns if customers flee."

Alvarion has been struggling to stay afloat in the turbulent WiMAX market. Two years ago it restructured, firing nearly 200 employees and acknowledging at the time that the outlook for the WiMAX market was unclear.

For more:
- see this Alvarion release
- see this Globes article

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