Merriman Curhan Ford Initiates Coverage on the Communications/Wireless Technology Sector
SAN FRANCISCO, Feb. 2 /PRNewswire-FirstCall/ — Merriman Curhan Ford (Nasdaq: MERR) today announced that it has initiated coverage on the Communications: Wireless Technology sector under equity research analyst Scott Searle, CFA.
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Searle’s research thesis includes company coverage of Alvarion Ltd. (ALVR), Aviat Networks, Inc. (AVNW), Brightpoint Inc. (CELL), Cogo Group, Inc. (COGO), RF Micro Devices, Inc. (RFMD), Smith Micro Software, Inc. (SMSI) and TriQuint Semiconductor, Inc. (TQNT) with Buy ratings and Palm, Inc. (PALM), Ceragon Networks, Ltd. (CRNT), DragonWave Inc. (DRWI) and PowerWave Technologies Inc. (PWAV) with Neutral ratings.
Searle highlighted these themes in his company initiation
reports:
-- Alvarion Ltd. (NASDAQ:ALVR $4.06; Buy)
Historically overhyped and often confused as a 4G competitor to
LTE, WiMAX is a real and commercially ready broadband wireless
solution that supports speeds of up to 40Mbps (going to
300Mbps). Despite the global credit freeze and ensuing
recession, WiMAX has over 500 deployments in 147 countries.
Alvarion is the leading independent supplier (with 20% market
share) of this largely rationalizing multibillion dollar
market opportunity. Although near-term visibility remains
cloudy, we believe this is currently reflected in the stock.
With $2.00 per share in net cash and EPS potential of $0.30-
0.40 in CY11 we believe investors will revisit the shares
driven by 1) a thawing of credit markets, 2) successful
licensing in key markets (i.e. India), 3) U.S. broadband
stimulus funds and 4) the emergence of new verticals. We are
initiating coverage at Buy and see upside to $7-8, or 18x
2011 EPS plus net cash per share.
-- Aviat Networks, Inc. (NASDAQ:AVNW $7.19; Buy)
Although Aviat Networks has underperformed market indexes and
its direct backhaul comps, the company remains extremely well
positioned to benefit from exploding growth in mobile data
traffic. Simply stated, the transition to 3G/4G and the
adoption of smart phones is choking networks. Mobile backhaul
is an immediate and sustained beneficiary of this trend.
Customer specific issues have largely subsided and we believe
customer activity is increasing. In our opinion, we believe
the company has the right products, product roadmap, scale and
complete end to end solution to achieve success. We believe
that despite the cloudy visibility that the underperformance
of shares will soon reverse and see upside to the $10-12 level
as the valuation gap narrows with its competitors.
-- Brightpoint Inc. (NASDAQ:CELL $5.84; Buy)
Brightpoint is the leading supplier of distribution and
logistics services to handsets and other wireless devices with
global and North American market share at approximately 7% and
over 30%, respectively. Thus Brightpoint is a broad based
means to participate in the recovery of global handset sales
in 2010 (10% vs. 7-8% decline in 2009). More importantly,
Brightpoint is an OEM agnostic way to participate in the Smart
Phone market which is expected to grow over 30% in 2010 and
beyond. In addition to higher ASPs, the market migration to
smart phones provides the opportunity for more value added and
higher margined logistics services. Importantly, while the
company has been steadily improving gross margins since mid
2007 it has paid down over $350M in debt. The recent earnings
bump has created a buying opportunity. We see upside to $8-10,
or 12-15 times CY11 EPS estimates.
-- Ceragon Networks, Ltd. (NASDAQ:CRNT $11.79; Neutral)
Ceragon Networks is a leading independent supplier of high
capacity microwave radio solutions for mobile backhaul
applications. The company offers a combination of IP and TDM
based products which offer a flexible network architecture to
its customers. The company has faired fairly well in the
current economic climate with top line results off less than
25% from 2008 peak levels. This is impressive given its
relative high exposure to markets such as India. Long-term,
the growth outlook appears healthy driven by incremental
network capacity demands from mobile data and next generation
(3G and 4G) networks. However, limited near-term visibility
combined with the over 70% stock price appreciation since the
mid-summer dampens our enthusiasm. We would wait for a better
entry point or an acceleration in end markets and are
initiating coverage at Neutral.
-- Cogo Group, Inc. (NASDAQ:COGO $6.36; Buy)
Cogo Group, Inc. is often over simplified as a China handset
and 3G play. While trends in these markets will certainly
impact sentiment, COGO is much more diverse with over 60% of
its revenue coming from non-wireless markets. One of the
notable non-wireless segments is Industrial (AMR, smart grid,
railway, auto, etc) which comprises 14% of revenue, up from
near 0% in 2007. Going forward we see growth in Industrial
(aided by the $600B stimulus plan), SME, new products (mobile
TV, sensors, etc.), export opportunities in wireless devices
and potentially new IC partners. With a favorable gross margin
mix, operating leverage, $2.84 per share in net cash, and a
cash adjusted P/E of less than 6 times 2010 EPS, shares of
COGO remain attractive with an upside of $10-12.
-- DragonWave Inc. (NASDAQ:DRWI $11.19; Neutral)
DragonWave, Inc is a leading supplier of Ethernet based radios
to IP networks. The company has done a phenomenal job of
correctly anticipating and servicing the trend of IP backhaul
in next generation networks, particularly WiMAX. DragonWave
has posted over 200% growth on the back of marquee customer
Clearwire's nationwide buildout. However, the company's
success has become its intermediate-term risk as Clearwire is
an 82% customer. While the company actively pursues customer
diversification, we believe large U.S. operators will take
time to make backhaul decisions. Furthermore it remains
unclear to us how existing mobile operators will approach
backhaul for its LTE rollouts, all IP or hybrid TDM/IP. We
would look to become more constructive on the stock with
better visibility to customer diversification or a pullback in
valuation.
-- Palm, Inc. (NASDAQ:PALM $10.39; Neutral)
Palm has pioneered the mobile device and the smart phone. Its
latest iteration with the Pre and Pixi, based on its robust
and critically lauded WebOS, has truly revitalized the
company. While the opportunity exists to replicate the
iPhone's market success and profitability, pitfalls remain.
Yes, the smart phone market is exploding with projected 30%
growth for the next several years, and yes, non-traditional
suppliers (Apple, Palm, RIM, etc.) are garnering bigger chunks
of market share. However, incremental distribution (more
carriers) and, importantly, more applications (more than 1,600
at present) will be required to achieve success. We estimate
breakeven at approximately 1.4M units and EPS power of $1.00
at approximately 3M units per quarter (vs. a recent 800k). We
expect a rapidly expanding operator base, but remain on the
sidelines until visibility to carrier adoption improves.
-- PowerWave Technologies Inc. (NASDAQ:PWAV $1.37; Neutral)
PowerWave Technologies is well positioned to benefit from the
capacity additions required by next generation wireless
networks, i.e. 3G, LTE and WiMAX. As a fully functional mobile
data ecosystem (networks, devices and applications) continues
to drive dramatic increases in network traffic (up over 100%
per year) operators will be required to invest in incremental
network capacity. Regardless if it is on existing or next
generation networks, PowerWave stands to benefit. However,
visibility remains limited given seasonality and the
infrastructure struggles of two key OEMs, Nokia and Alcatel-
Lucent (roughly 1/3 of revenue). Longer-term, we believe new
products (remote radio heads), new verticals (government) and
a modest market recovery can drive EPS approaching $0.20. We
await better visibility and are initiating coverage with a
Neutral rating.
-- RF Micro Devices Inc. (NASDAQ:RFMD $3.85; Buy)
RF Micro Devices has historically fought the perception that
the mobile device market will slow, competition and
integration will increase, and gross margins will remain under
pressure, in perpetuity. The reality is the traditional device
market has slowed, but new opportunities for connectivity (PC
Cards, M2M, WiMAX, WLAN, etc) are increasing. More
importantly, device complexity is driving incremental dollar
content per phone ($3-4 vs. $1-2). Additionally, integration
of the RF front end is unlikely to happen, however, complexity
within the front end itself (i.e. support of multiple bands)
is likely enabling RF Micro Devices to distance itself from
the competition. With further upside in gross and operating
margins, an improving balance sheet, strong free cash flow,
and a modest multiple of approximately 8x FY11 EPS, we
believe the shares have upside to the $7-8 range.
-- Smith Micro Software, Inc. (NASDAQ:SMSI $7.75; Buy)
Smith Micro is a leading supplier of software solutions that
manage adaptive mobile connectivity and personal digital
content for enterprise, consumer and operator customers. Its
flagship, Quicklink Mobile, manages and optimizes connectivity
of mobile devices such as notebooks, netbooks and other
emerging form factors onto wireless networks. Consequently,
the company is extremely well positioned for the huge ramp of
mobile devices that is projected to drive 40% CAGR in the
wireless PC modem market. Smith Micro services seven of the
top 10 north American carriers and two of the top three PC
OEMs. With limited competition (Smith Micro acquired its
closest competitor), attractive financials and a reasonable
valuation (less than 10 times 2011 EPS), Smith Micro is an
attractive play on the growth in mobile devices. We see upside
to the $13-16 level and initiate coverage with a Buy rating.
-- TriQuint Semiconductor, Inc. (NASDAQ:TQNT $6.00; Buy)
TriQuint, a leading supplier of high performance RF
semiconductors, is well positioned to take advantage of the
trends in units and increasing dollar content presented by 3G/
4G and the proliferation of smart phones and other mobile
devices. More so than any other RF IC vendor, we believe
TriQuint is leveraged to the high growth (30%) smart phone
market (approximately 35% of revenue) with key customers Apple
(primary supplier) and RIM (where TriQuint is gaining share).
Additionally, a recovery in the networking group will aid
results with growth in cable, new power devices, optical and
microwave backhaul. With expanding margins, a clean balance
sheet and smart phone momentum, shares remain attractive
trading at 10x CY10. We are initiating coverage at Buy with a
price target of $9-10.
Scott Searle has more than 17 years of experience covering communications and technology companies. Throughout his equity research career, Searle has specialized in covering small and mid-cap technology companies at S Squared Technology, SG Cowen, Dain Rauscher Wessels and UBS. While at SG Cowen, Searle was named as a fast-rising analyst in investor polls for covering communications equipment, with a specialization in wireless technology.
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