DragonWave in limbo as Clearwire holds off on capital spending

Microwave backhaul vendor DragonWave saw its net income and revenue decrease for the full fiscal year 2011 as the company continues to look for more opportunities outside of Clearwire (NASDAQ:CLWR), which has slowed its buildout of WiMAX technology.

The vendor announced that revenue for the full fiscal year 2011 came in at $118 million, compared with $158 million the prior year. Revenue from outside North America jumped to $21.9 million, or 18 percent of total revenue for the year, compared with $11.5 million, or 7 percent of total revenue, the previous year.

Net income for the full fiscal year was $2.0 million or $0.05 per diluted share, compared with net income of $27.8 million or $0.85 per diluted share in the prior fiscal year.

The most dramatic financial results were found in the fourth quarter of fiscal 2011 as DragonWave saw its revenue plummet from $61 million the previous year to $15.1 million in 2011. The company also reported a net loss of $8.9 million in the fourth quarter compared with a net income of $12.8 million in 2010.

"We made progress this quarter to broaden our global market presence to address the burgeoning growth of data traffic for mobile operators," said DragonWave President and CEO Peter Allen in a release. "We are actively engaged and well positioned with a number of major mobile operators in different geographies throughout the world and are working to expand channels and actively pursuing opportunities to make acquisitions."

Back in January, the Canadian wireless technology supplier predicted that revenues would slip to $15 million in the fourth quarter, completing a year-over-year slide of 75 percent. DragonWave gets the majority of its business from Clearwire. The company's move to diversify has gone slowly. DragonWave said it had two customers that contributed more than 10 percent of total revenue in the fourth quarter.

However, BTIG research analyst Walter Piecyk said DragonWave should benefit from funding Clearwire is likely to get this summer.

"Clearwire believes it has access to the debt markets and that its balance sheet can withstand $2 billion of unsecured debt. But DragonWave investors should not assume that Clearwire will tap those debt markets soon as Clearwire is attempting to raise significant strategic equity first," Piecyk wrote in a research note. "Of course Clearwire's financing is also all tied to the joint discussions it is having with Sprint on its Network Vision plan. The net result is that there is likely to be little capital spending by Clearwire or Sprint this quarter so the visibility of DragonWave's management team will not improve until this summer when Sprint reveals its 4G network plans."

Piecyk added that Clearwire is likely to get funded once Sprint reveals its 4G network plans and DragonWave should benefit. "Sprint's OEM's will utilize DragonWave for wireless backhaul as part of their network upgrade.  In the meantime, the quarterly run rate of $15 million of revenue that DragonWave generates is meaningless relative to the optionality of revenue from Sprint, Clearwire and other potential customers," he said.

For more:
- see this release

Special Report: FierceWireless Q1 earnings page

Related articles:
Clearwire-dependent DragonWave watches business erode
DragonWave cuts Clearwire strings with FiberTower microwave deal 
Investors jittery over DragonWave's customer prospects

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