India and the Middle East are proving to be lands of opportunity for Santa Ana’s Powerwave Technologies Inc.
The maker of antennas, amplifiers, filters and other gear for cell tower base stations is expanding to markets where wireless networks are being built out faster than they are here.
Last month Powerwave opened a 40,000-square-foot office in Hyderabad in India that’s set to serve customers in India, Pakistan and Bangladesh.
The office has roughly 300 workers in sales, marketing, engineering and customer service.
“We see a great potential in emerging markets,” said Ezmarai Arbab, vice president of emerging markets and global engineering. “It’s an amazing opportunity for companies like Powerwave since we are almost in every base station.”
Powerwave is going after rural villages in India that lack wireless coverage but are adding cell phone users at rapid rates.
Roughly 8 million subscribers were added during each month of 2008, according to Arbab.
“The cities are pretty much getting to saturation points for coverage, so we are looking to the 700 or 800 million people in India who live in villages,” he said.
Powerwave’s devices capture and boost radio signals between cell phones and base stations inside towers.
It 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.
In the past few months the company has struck deals with India’s government and with top-tier telecommunications companies in-cluding Vodafone Group PLC, Reliance Communications Ltd. and the telecom arm of Mumbai’s Tata Group.
Powerwave relies on feedback from its Indian workers to get a sense of the demands of remote places.
“The same technology applies, but how we deploy it, the look and feel and user experience is totally different in this market,” Arbab said.
Design Challenges
Powerwave had to design products to work around certain challenges.
Rural areas aren’t always hooked into the electricity grid and have spotty access to power. They often lack other public services such as roads and mail delivery.
The company has engineered devices that are very power efficient or fueled by wind or solar energy.
The gear also has to be cost-effective, durable and easy to set up and use, Arbab said.
“It’s a different dynamic from selling into Western markets,” he said.
This week, Powerwave plans to announce its biggest project to date that’s set to roll out during the next three years.
The company landed a contract from Saudi Arabia to outfit wireless base stations covering a massive indoor and outdoor complex of hotels, shops and restaurants in Mecca.
Powerwave said the job amounts to “the world’s largest wireless coverage system,” which is set to cover an area roughly equal to Las Vegas.
The company is working with Saudi Arabia’s Etihad Etisalat Co., the second largest wireless operator in the Middle East, which operates under the brand name Mobily.
“It’s a massive undertaking,” Powerwave Chief Executive Ronald Buschur said.
The government of Saudi Arabia is spending to provide wireless service to the roughly 3 million people who travel to Mecca for a yearly religious pilgrimage.
“When you have a massive crowd, people get very worried when they can’t get ahold of their family members,” said Arbab, a native of Afghanistan. “The demand on the network is also very high because they send pictures and videos home.”
The company declined to put a value on
the deal. Buschur said it was a “multimillion-dollar project.”
Choppy Waters
The move into emerging markets should give a boost to Powerwave, which has seen choppy results for the past few years.
Powerwave’s domestic customer base shrunk by as much as 30% after consolidation among telecommunications companies in 2006 and 2007, according to Buschur.
The company saw a bit of recovery in the first half of last year but was hit hard as credit tightened and wireless carriers froze spending on infrastructure projects.
“The global credit crisis and economic recession that began in the fall of 2008 will lead to reduced capital spending and lower demand for our products in the near term,” the company said in a regulatory filing.
Powerwave’s stock is off about 90% in the past year on a recent market value of about $30 million. It’s been trading for less than $1 a share since November.
The company, which has some 400 local workers, remains mired in red ink.
During the fourth quarter, Powerwave reported sales of $180 million, down 22% from a year earlier and short of analysts’ expectations.
After a slew of one-time charges related to a cost-reduction program and job cuts, it recorded a loss of $323 million, 73% more than the $187 million it lost during the same period a year ago.
This year, too, looks like it will be a rough ride for the company.
“We believe carriers will remain cautious with their capital expenditure plans in 2009 and as such we anticipate a challenging
year for Powerwave,” Piper Jaffray & Co. analyst T. Michael Walkley said in a research note.
Meanwhile, Powerwave is eyeing sales in Africa and Indonesia.
“We needed to expand our customer base and geographic reach of our products,” Buschur said. “The Mecca project is a sure testament to our abilities to do that.”
