The Powerwave Technologies Inc. surge is over,at least for now.
The Santa Ana maker of cell phone tower equipment endured, by my count, four downgrades from analysts the day after its July 31 report on second-quarter earnings.
Investors sent the stock down as much as 20.5% before it recovered somewhat to end off nearly 18%.
I don’t usually note volume but I have to in this case: More than 27 million shares were traded in one day, versus the average 4.1 million shares.
The company’s market value sunk by more than $150 million to about $740 million.
That one-day stock slide just accelerated the overall downward trend for the stock. It already was off more than 40% in the previous six months leading up to the announcement,largely because of concerns over the first-quarter earnings report.
The problem: Atlanta-based Cingular Wireless LLC, which makes up more than 10% of Powerwave’s sales.
Cingular helped Powerwave beat estimates at the end of 2005 and then pulled back on its spending in the first quarter.
Powerwave’s first-quarter sales were $193 million, up from $162 million a year earlier. That was before it bought assets of Del Mar-based Remec Inc. for about $150 million. Analysts were looking for sales of about $203 million.
The hope was that Cingular’s spending slowdown was more of hiccup than a long-term issue. The company earlier said it would have a strong second quarter with about $250 million in sales.
But we learned instead it posted sales of $232.4 million for the second quarter, up 20% from the year-ago period. Analysts were looking for revenue of $247 million.
Powerwave posted net income of $12.6 million during the second quarter, including acquisition costs. Excluding one-time costs, the company would have earned $17.5 million compared to $13 million a year ago, up 35%.
Analysts were expecting income of $15.7 million.
Chief Executive Ron Buschur said during a conference call with analysts that Cingular hasn’t come through with the results Powerwave anticipated.
“One of the areas that we had spent a lot of time over the last couple of quarters is looking at Cingular’s bill plans and how that was going to impact our revenue projections,” he said during the call. “Our discussions with Cingular … yes, they are planning on spending. I think they noted at best case it will be at the low-end of their estimates of their spending patterns.”
He later said that Cingular likely would go from making up 11% of sales in the second quarter to less than 5% in the third quarter.
The company forecasted sales of just $200 million to $210 million, compared to a previous average Wall Street estimate of closer to $270 million.
Still, Buschur isn’t giving up on the market.
Other customers, including Nokia Corp., should continue to deliver the same percentage of sales it has in the past.
“In looking at our industry, I remain very optimistic about the industry’s long-term future,” he said.
Calling on Gateway
There was a lot of disappointment out there after the recent Gateway Inc. earnings release.
The computer maker recorded a net loss of $7.7 million in the quarter, compared to a profit of $17.2 million a year earlier. Gateway posted a loss of $12.3 million in the first quarter.
Analysts were looking for a profit of $7.7 million in the second quarter.
The company recorded revenue of $919 million, up 5% from a year earlier. Analysts were looking for sales of $1 billion.
The stock dove 12% the day after the announcement,Aug. 4,leaving Gateway with a market value of about $500 million. The earnings news came just a few weeks after it lost its spot in the Standard & Poor’s 500 index.
During the conference call with investors and analysts, executives said there were some issues of execution in the retail market,and that brought down margins on the company’s healthiest business.
Some of those issues included excess freight and inventory adjustments.
“We just let some things get away from us,” said John Goldsberry, chief financial officer for Gateway, during the analysts’ call.
A Solid Quarter, But
Smith Micro Software Inc. had some record-setting numbers in its second quarter, but not enough to keep investors bidding shares higher.
The Aliso Viejo-based company, which makes software for wireless providers, said revenue hit $12.6 million, up 277% from the year-ago period.
Adjusted income also hit a record at $3.2 million, up from just $764,000 during the year-ago period.
Its cash stash grew as well during the quarter to $31.3 million, up about 20% from the previous quarter.
Smith Micro counts Verizon Wireless, part of Verizon Commun-ications Inc., as a key customer.
“Our business relationship with Verizon remains very strong as they continue to roll out their wireless broadband products and services,” said Chief Executive William Smith.
But the numbers weren’t strong enough to meet investors’ expectations.
They drove the stock down 12% to $12.57 in late July after the quarterly announcement. Smith Micro’s shares since have fallen another 17%.
One issue: the sales to Verizon. They accounted for about 75% of Smith Micro’s sales in the second quarter. Investors would like to see sales to more customers.
