Sequans watching costs during transition from WiMAX to LTE

Chipmaker Sequans Communications is trying to keep a lid on expenses as it transitions from WiMAX to LTE. Nonetheless it did enjoy some upsides to its existing WiMAX business during the second quarter of 2012.

For the quarter, Sequans suffered a net loss of $8.3 million, an improvement from the net loss of $9.0 in first quarter of 2012. The company showed a net profit of $100,000 during the second quarter of 2011.

As Sequans' shifts development efforts from WiMAX to LTE, the company hopes to "limit our operating loss with continued stringent control of our expenses," said Georges Karam, Sequans CEO. As part of that effort, the company recently slashed its headcount by about 10 percent.

The chip vendor's second-quarter revenue of $7 million represented a 71 percent sequential improvement from the previous quarter but a 77 percent decrease from second quarter of 2011. "The sequential increase reflects an increase in shipments of LTE products and a resumption of orders for WiMAX products from a historically large customer. The decrease compared to the prior year was due to lower sales to this same customer, following changes in the WiMAX market in the United States in the second half of 2011," said Sequans.

The large customer referenced is likely Clearwire (NASDAQ:CLWR), whose switch in focus from WiMAX to TD-LTE has thrown much of the WiMAX ecosystem into disarray. Nonetheless, the U.S. WiMAX market brought Sequans some good news during the recently ended quarter as Sprint Nextel's (NYSE:S) Virgin Mobile USA and Boost Mobile prepaid sub-brands both began offering WiMAX service over Clearwire's network.

Karam said the company expects demand for WiMAX products from prepaid operators might be heavy one quarter, slow for the next, then heavy again. "We remain cautious, assuming that this will be lumpy," he said during Sequan's second-quarter earnings call, according to a Seeking Alpha transcript.

Sequans also benefitted from WiMAX shipments to HTC, "which we believe are to supply operators in Japan and Taiwan," said Karam. "The fact that HTC has placed new orders is certainly a positive sign, but we continue to assume that WiMAX revenue will be lumpy going forward," added Karam. HTC was Sequans largest customer in 2010 and 2011.

At the end of June, Sequans began volume shipments of all three chips in its second-generation LTE platform. Sequans has achieved design wins in several countries and strengthened its relationships with several key operators via collaboration on additional advanced features and capabilities, said Karam.

One area on which the company is focusing its LTE efforts is Greenfield operators in markets such as India, Russia and the Middle East. Sequans' new WiMAX-LTE chipset will be used in dual-mode customer premises equipment deployed by Packet One Networks in Malaysia. "We are very pleased with the market reception and expect to expand this business in 2013," said Karam.

Sequans is also targeting traditional CDMA operators, such as Sprint, Verizon (NYSE:VZ) and Japan's KDDI, as they migrate to LTE. Sequans is working with Clearwire to support its wholesale LTE business model with TDD and FDD capabilities.

"In collaborating with Sequans on the development of LTE devices for our network, our technology team will work with Sequans on performance testing and certification, standards development and the creation of devices to support TDD-LTE solutions," said Erik Prusch, Clearwire CEO and president, during the operator's second-quarter 2012 earnings call, according to a Seeking Alpha transcript.

Sequans is also focused on TD-LTE development efforts in China. China Mobile's phase two trials require dual-mode quad-band devices that support TD-SCDMA as well as TD-LTE in the 1.9, 2.3 and 2.6 GHz bands, plus the LTE FDD Band 7 spectrum that China Mobile recently acquired in Hong Kong. "Our solution will also be able to do a seamless handoff between (sic) the four bands and the three modes TD-SCDMA, TD-LTE and FDD LTE," said Karam.

He said Sequans continues to evaluate strategic alternatives for addressing the 3GPP market as WCDMA operators slowly migrate to LTE.

Paris-based Sequans was founded in 2003 to address the WiMAX market but expanded its focus to LTE in early 2009.

For more:
- see this Sequans release
- see this Seeking Alpha transcript and this transcript

Related articles:
Clearwire stays on track for TDD-LTE launch, defends financial position
Carriers hold key to TD-LTE's out-of-the-gate performance
Sprint's Boost begins marketing prepaid WiMAX product
Alvarion sours on WiMAX
NewNet banking on WiMAX resurgence
Sequans, Clearwire collaborating on TD-LTE devices
Sequans' WiMAX biz suffers but company eyes LTE growth

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