Aaron Katsman
IsraelNewsletter.com
Federal Reserve chairman Ben Bernanke’s tough talk on the US Dollar helped support the greenback against the major global currencies, but it caused a minor rally against the Israeli shekel. As a reminder, the shekel has been one of the world’s strongest currencies over the last year, and its strength, while serving as a seal of approval on the state of the Israeli economy, has crushed exporters as well as many Israeli hi-tech’s that sell globally but keep their R&D local, due to the fact that their expense line has increased from the currency differential. (Continue »)
Lots of Israeli companies reporting earnings. Here are some highlights:
Perrigo (PRGO): Tightened up 2008 guidance higher and beat revenues projections. Earnings release here. Early look at the stock is that investors aren’t impressed. See our recent commentary on PRGO’s generic nicotine gum.
Teva Pharmaceuticals (TEVA): Earnings report here. Quarter over quarter growth looks to be 24% and profit down from CoGenesys charge.
RRSat (RRST): Smacked yesterday after an earnings release. The 20% drop came after putting up pretty good top lines numbers. Margins came down quite a bit.
Alvarion (ALVR): Stock popped after the wireless backhaul firm put up pretty good revenue numbers and a narrower loss. The stock jumped 15%. Earnings report here. See our analysis of the recent turbulence in the wireless market.
Ness Technologies (NSTC): Revenues up 27% year-over-year and earnings up 20%. Earnings report here.
Partner Communications (PTNR): Earnings report here. Total revenues up 12% and Net Income up 24%.
On the back of the wireless spectrum auction results, I just wanted to share some ideas I had penned, oh about 2 months ago about how to make sense of the rapid changes going on in the wireless industry. More specifically, what I believe is happening is the evolution from Internet and wireless as 2 separate entities to a more unified, Wireless Internet. We’re still just in the putting-the-infrastructure-pieces-together stage.
I think it’s best to describe the trends briefly and then see who stands to benefits from such trends:
The opening of networks
As wireless networks begin to open up (this will take time before it really happens), the carriers should stand to benefit from the ability to monetize their networks via new revenues from non-subscribers. Much like the interconnect fees, the consumer will end up paying more in the short-run and all the open networks will win in 2 ways: you’ll have to open up to compete , monetizing cross network traffic
Apple (Nasdaq:AAPL) right now has made a commitment to only one network in the US. The device is so compelling that it may not matter but if the device ever loses some of its luster, Apple may need to think about making its device work on other networks.
Qualcom (Nasdaq: QCOM) loses. As networks open up, it will be hard for Qualcom to continue to collect its royalties on its closed-technology. Competitive pressures at both the device level and the network level will push Qualcom to find other revenue streams.
Google (Nasdaq: GOOG) wins. I never believed Google was bidding to win wireless spectrum. Instead of owning spectrum, Google has already won by pushing/lobbying the opening of competitive networks. Android and the Open Handset Alliance will allow Google to run the advertising OS of the mobile industry, just like it has become the Web’s Advertising OS.
Sprint seeking a strategy and what’s really happening in WiMAX
I see Sprint’s reworking of its WiMAX strategy as less a call on WiMAX and more specific to the Sprint situation. Sprint has internal issues it needs to shore up before it can think about any new audacious network rollouts. The fact that Ceragon (Nasdaq: CRNT) and Alvarion (Nasdaq: ALVR) are just continuing to knock the ball out of the park in terms of new WiMAX deals won (Alvarion has over 220 plus 40 in mobile WiMAX) shows that the for the rest of the world, WiMAX isn’t going to happen, it’s already started to happen. When WiMAX reaches critical mass, companies like Alvarion are in on the ground floor.
Retail sales move away from Big Box retailers as products unbundled
If the hardware ever is truly unbundled from network service contracts, then I think everything points to retail sales immediately taking to the Internet. Contracts and bundles are so complicated that you need local stores and the Big-Box operators to man sales forces to sell these. Once you can purchase a phone and a network contract separately, look to Amazon to become a major force in wireless sales.
I don’t think Retail sales go away entirely, but you’ll see a chink in the armor once direct sales become more feasible. Ebay and comparison shopping sites should begin to take over this field as they have in other fields where the products are more straight-forward and more commoditized.
Personalization
We’ve seen just the early innings of the personalization movement on the mobile device. Ringtones have become a $6 billion/yr business. The next stage here is video usage (less than 20% of US mobile subs use video on their handset). Private companies like Vringo and public companies like EA, which bought Jamdat (one of the early casual gaming firms focused on the mobile) should benefit. As more value-added services roll-out, companies like Comverse Technologies (OTC: CMVT.PK) (estimated to have almost 50% of world market share in voice mail services) and Amdocs (NYSE: DOX) will play a big role at the carrier level for running the content/technology/billing environments. If services don’t go the carrier route and instead work at the handset level, we’ll see tons of startups in this area.
I think iTunes will play a big role in delivering music to the phone and other products will follow suit, though not nearly as successfully.
Music firms, like Universal, who get it (albeit just a little) will begin to see opportunities for distribution online beyond just selling buckets of ringtones. Companies like Jupitermedia (Nasdaq: JUPM) are assembling large royalty-free libraries of music and this may begin to get interesting.
Hardware
I’m not that knowledgable on the equipment side but I do think Synaptics (Nasdaq: SYNA) will continue to see design wins as the device takes more center stage in the future as we get closer and closer to a true computing+mobile device. Input devices, as clearly demonstrated in the iPhone UI, are getting more creative and more useful.
Disclosure: Author’s fund has positions in ALVR, DOX, and CMVT as of 3/24/08.
Please see our Disclaimer HERE.
NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.
Aaron Katsman
www.IsraelNewsletter.com
I would like to start by taking this opportunity to wish my wife, Yael “Nefesh B’Nefesh” Katsman, a belated happy anniversary. Our anniversary was actually yesterday, and NO I didn’t forget, we had a tasty dinner, I just didn’t mention it in the blog. Give me a little credit.
The big news of the last 24 hours is the intervention in the currency market by the Bank of Israel (BOI). Yesterday afternoon in after-market trading the Shekel/USD rate fell to approximately 3.34. Then came the news that the BOI was intervening for the first time in more than a decade, and that send the greenback back up more than 1.5%. Today, the BOI announced more intervention, and that is helping the dollar even more. Local media reports have said that the BOI wants to get the exchange rate back to at least 3.60, which is about 4% high than today.
Why the sudden move by the BOI? The shekel has been the second strongest currency in the world YTD, and the impact on exporters has been huge. Losses continue to mount for them, and the BOI needed to do something.
This move could have profound impact on some Israeli stocks that trade in the US. Companies like Alvarion (ALVR), Nice Systems(NICE), Amdocs(DOX), all do R&D in Israel and their expense lines have increased due to the strength of the shekel. The recent BOI intervention could potentially have positive ramifications on earnings for these companies.
Disclosure: Author’s fund holds a position in ALVR, NICE and DOX. He has no position in any other stock mentioned as of 3/14/08.
Please see our Disclaimer HERE.
NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.
Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
