Santa Ana’s Powerwave Technologies Inc. is looking to shake off some growing pains and streamline after a six-year acquisition spree.
The company, which makes gear for wireless phone networks, needs a turnaround to get back into the black.
It’s had a rough go of late.
Investors have hammered Powerwave’s stock, which is off 25% in the past 12 months with a recent market value of $860 million. It’s seen a slew of shareholder lawsuits.
At the same time, consolidation in the wireless communications sector has shrunk Powerwave’s pool of customers by as much as 30% this year, according to Chief Executive Ron Buschur.
The consolidation has “really contracted our overall customer base,” he said. “That makes it tough to expand market share.”
Powerwave sells amplifiers, antennas, filters and other products that boost signals on wireless networks.
Customers include Nokia Siemens Networks, a venture of Siemens AG and Nokia Corp., which made up a third of Powerwave’s $164 million in sales in the first quarter.
Paris-based Alcatel-Lucent accounted for about 14%. Sprint Nextel Corp. also is a customer.
Overall, first-quarter sales were down 10% from a year earlier.
Losses, Issues
The company has been operating at a loss for about a year now as it struggles with manufacturing missteps and issues integrating acquired businesses.
At the end of 2006, poor results were blamed on a faulty software rollout and manufacturing delays at a Powerwave site in Estonia.
“We did a very poor job in implementing one segment in one location,” Buschur said. “But we rolled it out seamlessly everywhere else.”
Analysts say the company needs to get more efficient,fast.
Powerwave’s first-quarter expenses of about $58 million were higher than analysts expected.
“It may take Powerwave longer to reach breakeven than we originally anticipated,” said Michael Walkley, analyst at Piper Jaffray & Co., in a recent note.
Walkley expected Powerwave to spend about $53 million during the quarter.
The company cited its recent $185 million buy of Filtronic Comtek, a unit of Britain’s Filtronic PLC, for the higher costs.
Filtronic got about 18 million Powerwave shares in the deal. The company since has dumped the shares amid Powerwave’s decline on Wall Street.
Buschur said he wasn’t miffed by the sell-off.
“It really doesn’t have a negative effect on our ownership,” he said. “They had the right to sell their shares.”
Powerwave has done six big deals in the past eight years,snatching up competitors and companies with related products.
Under Buschur, Powerwave has grown its product lineup beyond mainstay amplifiers.
“We wanted to diversify our product offering and expand our customer base,” Buschur said. “What would enable us to do that is to have more products so that we could move farther up the value chain.”
Amid consolidation, Powerwave is looking to be more relevant to bigger customers by providing a suite of products.
“We’ve consolidated the market segments ourselves rather aggressively,” Buschur said. “At this point the major players have somewhat consolidated, and I think we are going to see that stabilize.”
There’s another strategy behind the buys.
“It rationalized the number of players in the marketplace,” Buschur said. “Among our customers, it stabilizes the pricing.”
Powerwave’s others acquisitions:
– Hewlett-Packard Co.’s amplifier business in 1999.
– Britain’s Toracomm Ltd., a maker of transceiver designs for wireless base stations and cell phone handsets, in 2001.
– New York-based Ericsson Amplifier Technologies Inc., a unit of Sony Ericsson Mobile Communications Inc. that makes power amplifiers, in 2003.
– Sweden’s LGP Allgon Holding, a maker of wireless antennas and other wireless infrastructure devices, in 2004.
– Canada’s Kaval Wireless Technologies Inc. and some assets of Del Mar-based Remec Inc.’s wireless business, in 2005.
Restructuring
Buschur, who came to Powerwave in 2001 and took over as chief executive in 2005 from Bruce Edwards, now executive chairman, has been restructuring the company after the deals.
Powerwave said last year it plans to consolidate plants in China and has outsourced other manufacturing.
“What is critical for us today is looking at efficiencies in productivity and to make sure we use the assets we have deployed,” Buschur said.
Job cuts could be in the works. Buschur was mum. Powerwave has about 280 workers in Santa Ana and more than 3,400 worldwide.
“We know that we need to continue to reduce our operating expenses,” he said. “We are looking at the steps that are necessary and looking at all of our operations.”
Years ago, Powerwave did all of its manufacturing locally. These days, it has about two dozen sites in Europe, Asia and the U.S.
The company is sticking by its outlook for reaching profitability by the end of this year on expected revenue of $720 million to $800 million. Last year, Powerwave had sales of $717 million.
The company could see sales gains with another big mobile carrier: T-Mobile USA Inc., a unit of Deutsche Telecom AG.
T-Mobile is expected to spend millions in coming years to build its third-generation network in North America.
Powerwave also is looking to East Asia, India and South America for growth.
“That’s exciting, especially when you look at the number of users in these regions,” Buschur said. “And the penetration rates are growing fast.”
Analysts are skeptical.
“Unless Powerwave reaches the high end of its revenue guidance or reduces operating expenses faster than our model, we believe the company will struggle to reach profitability by the fourth quarter,” Walkley said.
