Powerwave Sales Tripled in ’99, as Cell-Phone Firms Scrambled to Add Technology
The proliferation of cell phones in cars on the freeways, at tables in the restaurants and in seats at the movie theaters is paying off for Powerwave Technologies Inc., which is relishing a dramatic turnaround and prospects for even faster growth this year.
“There’s been a lot of demand for cellular services, and we’ve been working for the last four or five years to really participate in that demand,” says Powerwave CFO Kevin Michaels. “It’s a real competitive business, but we’ve been having some success.”
Indeed. The Irvine manufacturer, which makes equipment used to boost wireless phone signals, rebounded from a $3 million loss in 1998 to a $20.3 million profit in 1999. Its revenue, meanwhile, jumped from $100.2 million in 1998 to $292.5 million last year.
Even before the Jan. 18 earnings announcement, the stock had begun to climb, more than doubling from its Jan. 6 closing price of $46.25 per share to around $100 last week.
The loss in 1999 was attributed in part to the financial crisis in Asia, one of Powerwave’s primary markets. Officials also cited the company’s acquisition of Hewlett Packard Co.’s Folsom-based power amplifier business, which is already paying off. The purchase added a line of single-carrier amplifiers to Powerwave’s multi-carrier products, as well as bringing along HP’s existing customers and opening doors for others.
Powerwave added about 300 people to its workforce over the course of the year, and in September, Deloitte & Touche named the company one of the fastest-growing technology firms in Orange County and Los Angeles for the third year in a row.
The company employs 800 full-time workers and about 700 contract employees, most of those in Irvine.
Michaels credited the company’s growth to the burgeoning popularity of wireless phones and a scramble by service providers to upgrade their systems for a host of digital services set to launch in the coming months. Most wireless phone companies are aggressively marketing new capabilities such as e-mail and web browsing via cell phone.
Powerwave’s equipment amplifies the radio frequency signals used in a variety of cellular phone platforms, including the standard and digital cellular, TDMA and CDMA PCS formats used in the United States, as well as Europe’s GSM standard and others. The equipment helps improve the strength of the signal sent to mobile phones while reducing interference. While power amplifiers aren’t the sexiest piece of the telecommunications market, the $1,000 to $10,000 devices are a crucial component of the industry’s growth.
Powerwave sells the equipment to other well-known equipment makers such as Lucent Technologies and Nortel, while competing with many of those same names for other contracts.
The company supplies equipment for several overseas markets, but counts North America as its primary outlet. Despite the seeming ubiquity of wireless phones these days, U.S. consumers have actually adopted the technology more slowly than their counterparts in some overseas markets. That leaves plenty of virgin market territory, Michaels says, especially with the newest generation of phones hitting the streets.
But according to one analyst, serendipity could have played an equally significant role in Powerwave’s recent boom.
Ed Snyder, an analyst for Chase H & Q;, said Powerwave has taken advantage of problems by big-name equipment makers such as Ericcson, which fumbled a contract with AT & T; Wireless by not being able to meet demand. AT & T; has been especially frantic to boost capacity because of widespread complaints and a lawsuit by subscribers who say the company oversold its popular “One Rate” service.
“Ericcson sort of angered AT & T; by not being able to deliver, so they gave the business to Powerwave,” he says.
And Powerwave officials say they’re ready for Asia, which is expected to be a huge area of expansion as the region emerges from recent financial troubles.
Michaels says he expects “reasonable” growth this year,
According to a study from Boston research firm Cahners In-Stat Group released last summer, the value of wireless equipment contracts grew more than $4.5 billion worldwide in 1998, totaling more than $23 billion. And that rate of growth should continue for at least another 30 months, the study concluded.
And Prudential Securities, which has rated Powerwave as “accumulate,” predicts the amplifier market to triple over the next three years to more than $3 billion, with 20% of that business going to independent manufacturers such as Powerwave. n
