Cisco(CSCO) Should Buy Alvarion(ALVR), Not Navini
Written by: Zack Miller | October 16, 2007
Zack Miller
IsraelNewsletter.com
Tech Insider site, Unstrung, wrote yesterday that various sources are pointing to Cisco (CSCO) doing an imminent M&A in the WiMAX space and the most likely candidate is Navini Networks. Interesting factoid…
Unstrung’s analysis is based on a ThinkEquity analyst’s piece published on September 28th. In the piece, analyst Anton Wahlman posits two interesting pieces of info:
- Cisco is finally interested in getting serious about WiMAX.
- Navini wins the bake-off and not Alvarion (ALVR)
So, addressing point #1, ThinkEquity’s thesis is that WiFi, something Cisco knows A LOT about with its Linksys acquisition, and WiMAX go together, much like enterprise and public networks (muni and cellular) are all blending together. Cisco, of course, realizes this and its next move would have to be a seminal acquisition of a WiMAX public networks company. Here’s a link to more about CSCO’s WiMAX ambitions.
Point #2 requires some analysis. Why would Cisco choose to go with Navini? Well, a couple of reasons. Navini has “beamforming technology” . See Wikipedia on beamforming here. ThinkEquity believes this is critical for best performance. Navini also has deployed with AT&T (T) in several good markets (FL, LA, and GA). Lastly, Navini has made good progress on the 802.16e standard. So, in essence, ThinkEquity believes that beamforming makes MIMO technology really useful.
If Cisco were to purchase Navini, it would mean bypassing Alvarion. Clearly, the WiMAX opportunity is huge. There are probably 1000 operators who will spend $10M to over $100M each rolling out WiMAX in the next two to four years. ThinkEquity believes this market opportunity is $10B-$100B+.
If Alvarion plays its cards right, building off its best-in-class execution of a WiMAX centric plan with the world’s system-level equipment suppliers, some analysis points to the fact that they could capture 5% or more of market share in this space. Backing that out, that could mean anywhere from $500M - $5B in revenues. Alvarion currently sports a market cap under $800M with a net-cash position of almost $2/share.
Alvarion has the largest installed based of fixed WiMAX deployments (170 out of 350 worldwide) and is the only vendor currently shipping mobile WiMAX ready base stations. Mobile WiMAX itself is purported to grow from 0 today to $5B in 5 years. There are a lot of opportunities for ALVR on the horizon, both near and far.
Clearly, Alvarion is a key thematic investment in the entire WiMax roll-out and if ThinkEquity is right (i.e., WIFI and WiMAX will deploy in blended format), ALVR will leverage its exposure to FMC (fixed-mobile convergence) as cell phone companies make headway in the inefficient wireless telephony architectures for a majority of all calls made/received.
CSCO seems to be making a technology bet if they scoop up Navini — a move that will give them a strong, but not dominating, presence in WiMAX. I’d rather put my chips on ALVR and its business and financial operating history, complete with cash on the books and no debt. Regardless, if CSCO does decide to move forward into WiMax with an M&A of Navini, it provides a huge seal of approbation for WiMAX and means a huge player, previously lukewarm to the idea, is getting serious about it.
ALVR should benefit regardless of the outcome.
Disclosure: Author’s fund has a position in ALVR as of 10/15/07.
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Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC. and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email zack@profile-financial.com
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