Santa Ana’s Powerwave Technologies Inc. is turning the corner on two tough years of restructuring.
The signs of progress:
– The maker of equipment for wireless networks is seeing stable demand for its behind-the-scenes devices that make cell phones work.
– The constant demand for lower prices on Powerwave gear has eased from years past.
– Perhaps most telling: Early this year Powerwave returned to profitability after a string of losses.
“We’ve taken the company from a loss position to generating positive earnings again,” Chief Operating Officer Marvin MaGee said. “Things are encouraging.”
The company’s shares bear it out. Powerwave’s stock bottomed out in April and since has more than doubled to a recent market value of about $600 million.
“This is really the first time in over two years that fundamentals are strengthening,” said William Choi, an analyst at Jeffries & Co. in New York. “The industry went through a tough time.”
Powerwave’s amplifiers, antennas, filters and repeaters have a simple purpose,to capture and boost radio signals between cell phones and base stations inside towers.
The company sells to bigger wireless equipment makers such as Nokia Siemens Networks and Alcatel-Lucent as well as directly to service providers Verizon Communications Inc. and AT & T; Inc.
A few years ago, industry consolidation shrank Powerwave’s pool of customers, setting it on a course of declining revenue, losses and restructuring.
“We went from having more than a dozen customers to having six or seven,” MaGee said. “There were a lot of difficult choices for us to make.”
The company has “consolidated its manufacturing facilities, rationalized its supply chain and streamlined operations,” analyst Choi said.
Now he and others on Wall Street are looking for a payoff.
“Powerwave is well-positioned to reap benefits and see significant financial leverage throughout 2008 and 2009,” he said.
The company beat analysts’ expectations for the past three quarters and twice upped its outlook for the rest of the year.
Powerwave projects 2008 sales of $920 million to $960 million, up from an earlier forecast of $880 million to $920 million.
Wall Street is expecting 2008 profits of $22 million, versus a loss of $67 million a year earlier. On average, analysts expect sales for the year of $952 million, up 22%.
For 2009, analysts see Powerwave hitting the $1 billion mark in revenue.
Besides restructuring, the other part of the story is stable industry conditions.
Price declines,the norm for commodity technology goods such as Powerwave’s,aren’t as steep now as they were in the past.
“We’re hearing that overall price declines are in the 8% to 10% range, rather than the 15% to 20% we’ve seen in the last two years,” Choi said in a note to clients.
Stronger demand and steady spending by the nation’s biggest wireless service providers is giving Powerwave a boost.
AT & T; is rolling out its third-generation wireless network with more capacity for handling video, music and photos on phones.
“AT & T;’s 3G equipment demand continues to be very robust,” Choi said.
Industry watchers call it the “iPhone effect.”
Other telecom companies also are buying airwave space to expand their networks, Powerwave’s MaGee said.
