Novatel Wireless Inc. strengthened its position as the No. 1 supplier of PC cards in the United States in the second quarter, finally beating long-time rival Sierra Wireless Inc. Sierra has dominated the PC card market, but several critical missteps paved the way for Novatel to capture the market’s lead.
Novatel’s successes coincide with increased buzz in the PC card market. Sprint Corp. and Verizon Wireless are rolling out CDMA 1x EV-DO networks across the nation, while Cingular Wireless L.L.C. is gearing up to launch W-CDMA/High-Speed Downlink Packet Access services by the end of this year. Carriers in Europe are expanding their W-CDMA networks across the region.
Such networks represent a boon to the PC card market. Third-generation speeds rival those of standard wired Internet connections, which many expect will drive users to purchase wireless PC cards for their laptops.
In the second quarter, Novatel sold more than double the number of PC cards than Sierra sold. Although the companies don’t reveal shipment numbers, Novatel recorded $34.7 million in revenues from PC card sales, according to investment banking firm Avondale Partners L.L.C. Sierra, on the other hand, reported $16.4 million in PC card revenues.
“The largest wireless carriers are having success with their 3G wireless data offerings, and we are entrenched with the largest operators,” boasted Peter Leparulo, Novatel’s chief executive officer.
In the second quarter, Novatel posted total revenues of $38.6 million, a massive 60-percent jump from the same quarter a year ago. The company’s net income came in at $2.9 million, down slightly from its year-ago earnings. Novatel blamed its sluggish net income on the weakening euro and the costs of its revamped distribution operations in Europe.
Novatel initially pushed past Sierra in the first quarter, capitalizing on Sierra’s stumblings in its smart-phone and embedded module businesses. Sierra had put much of its future hopes on its Voq smart-phone business, but carriers declined to sell the device. Without carrier support, Sierra was unable to tempt business customers with the Windows Mobile gadget.
Further, Sierra’s Voq business ultimately undermined its embedded module operations. Palm Inc. had been using Sierra’s modules in its Treo smart phones, but quit after Sierra announced it would compete against the Treo with its Voq phone. The move largely killed Sierra’s embedded modules business; it accounted for only $1.5 million in revenues in the second quarter, down from $16.5 million in the same quarter a year ago.
As Sierra looks to lick its wounds and get back into the PC card race, Novatel is banking on a new, advanced product to help further boost sales. The company recently began selling its Ovation application console through MmO2 plc’s German O2 subsidiary and made a major $4 million in revenues on the gadget in the second quarter. Novatel’s Ovation supports 3G connections alongside Wi-Fi and Voice over Internet Protocol technologies, allowing computer users to cut entirely the wires on their Internet and voice connections.
“More wireless carriers will eventually look to offer wireless DSL replacement services to increase their return on investment,” said John Bright with Avondale Partners. The firm makes a market in the securities of Novatel and Sierra. “That’s where the market is going.”
Both Novatel and Sierra also are racing to supply their modules to laptop computer makers. Already Sony Corp. released a laptop that features built-in support for Cingular Wireless’ EDGE network. Sony Ericsson Mobile Communications L.P. supplied the wireless component.
Sony Ericsson also plays in the PC card market, along with Kyocera Wireless Corp., UTStarcom Inc. and Option N.V. Option is the world’s largest PC card vendor by revenue, with major operations in Europe.
