Novatel's guidance for MiFi hotspot device disappointing

The MiFi wireless router drove revenues for Novatel Wireless in the third quarter, but the maker of the personal hotspot caused panic among investors after issuing disappointing guidance for the fourth quarter as it indicated that end user sales of the device haven't kept up with expectations.

The MiFi uses a 3G connection to create a personal WiFi cloud that can connect WiFi-enabled devices, such as digital cameras or an iPod Touch.

The portable hotspot device raked in $37.9 million, or 40 percent, of Novatel's sales in the quarter. The sales offset a loss of about $28.1 million in revenue within Novatel's embedded business as the company lost a large unnamed customer. Total revenues came in at $94.3 million while net income came in at $6.2 million. Still, Novatel's stock lost about a quarter of its value on Friday as the company revealed that sales cycles of the MiFi were longer than anticipated and that sell through needs to catch up with the initial stocking orders. Moreover, competitors such as Sierra Wireless plan to introduce similar devices.

"Despite stellar reviews and overwhelmingly positive feedback from users, Novatel's MiFi is seeing lower sell-through to end-users than we initially anticipated," wrote Matthew Hoffman, analyst with Cowen & Co. "We continue to believe the product will be a sales success at the holidays, but pricing, marketing and training will likely have to sharpen for that to occur." Hoffman kept his Overweight rating of the company's stock.

Novatel Chairman and CEO  Peter Leparulo said the company expects fourth-quarter MiFi sales to be similar to third-quarter sales as sell-through catches of up with orders. "We believe that growth will resume as some carriers work through their initial orders, step up their training and promotional activities and eventually reduce the retail cost to end users," Leparulo said in a conference call, according to a Factset transcript.

The company is also working to drive development of a software and application community for MiFi. But it's that ecosystem/software/application strategy that has analysts are questioning given Novatel's lack of track record in that area.

For more:
- see this Barron's article
- read this release
- take a look at this GigaOM post
- read this Dow Jones article

Related articles:
Verizon's answer to WiFi: MiFi
Sprint follows Verizon in offering MiFi
Novatel introduces smart 3G router