Despite record shipments, Nortel’s WiMAX decision impacts Alvarion

Nortel Network Corp’s decision to shut down its mobile WiMAX division not only hurt Alvarion Ltd.’s 2008 bottom line but its severed agreement will linger this year and may result in a legal dispute.
Alvarion posted a loss in the fourth quarter as the company had to write off $2.4 million in revenue that was owed by Nortel, which filed for bankruptcy last month.
Nortel’s Jan. 29 announcement that it is getting out of the WiMAX market also contributed to Alvarion posting a loss overall for 2008 and will negatively affect the first quarter of this year for the WiMAX vendor.
Alvarion CEO Tzvika Friedman also claims Nortel owes “millions” to the company from a research and development funding provision in the contract the companies entered into last June.
“We will use all possible means to pursue our claim and collect the money even though the bankruptcy process makes it difficult,” Friedman said.
Friedman did not disclose an exact figure but said the process to recoup the money will be lengthy and may include direct negotiations with Nortel. “It does not have to go into litigation,” he said. “We have to decide our strategy.”
Alvarion officials said they cannot disclose how much money is in question because of a non-disclosure agreement that is part of the contract.
Nortel issued a statement in regard to Alvarion’s claim. Nortel officials said the company’s decision to end the partnership was “difficult” but “necessary” because of their current financial situation.
“We sincerely regret any hardship this may cause Alvarion, and are committed to working with them to transition our mobile WiMAX customers to them,” according to Nortel’s statement. “
Record revenues
Alvarion posted record WiMAX shipments of $189 million and record revenue of $171 million in 2008. For the fourth quarter, the company also posted a record with WiMAX shipments of $57.7 million. The company’s revenue for the quarter was $43.9 million.
The revenue would have been more, but the company had to take its shipments, $2.4 million, to Nortel off its books, Friedman said.
For the final quarter, the company lost $4.8 million, which also included a restructuring charge of $3.4 million in connection with cost reduction initiatives that were implemented last December. Overall, the company posted $5.5 million in losses for 2008.
“Nortel’s decision affected the entire quarter,” Friedman said, adding the company may also experience a similar loss for the first quarter of this year because of the agreement with Nortel.
Last year, the companies agreed to integrate Alvarion’s advanced radio access network technology with Nortel’s core network solution. Nortel also sold Alvarion’s WiMAX products under the deal.
Nortel was not selected by Sprint Nextel Corp. for its WiMAX rollout and the Canadian company has also dropped its W-CDMA business line. The company is continuing to develop its LTE product line and is participating in trials with Verizon Wireless.
Alvarion officials said the company is now focusing on transitioning its customers that had deals in place with Nortel.
“There will be a slight delay while we workout the exact details of each relationship,” Friedman said.
Friedman said Nortel’s decision to end its WiMAX business is not a reflection of the technology but a result of their financial situation.
“In 2008, WiMAX continued to exhibit strong demand, despite concerns over a spreading global recession,” he said. “It was a good sign.”
Because of the economic climate, Alvarion is taking a cautious approach in its projections for this year and also reducing salaries for employees. The company is planning for revenue this quarter to be similar to its fourth-quarter results. However, an analyst firm is projecting a tough year for WiMAX operators.
Aiming to expand in U.S.
Ashish Sharma, Alvarion VP of marketing development, said overall 2008 was a strong year for the company.
“Business continues to be very good,” he said. “We have won some major contracts.”
The company continues to see growth in Africa, Latin America, Russia and Asia. The company also sees great potential for WiMAX in India.
In the United States, Alvarion has partnered with DigitalBridge Communications, a fixed WiMAX operator that launched the first mobile network in Wyoming last year. The company is also working with Towerstream Corp. Sharma said Alvarion is looking to expand its presence in the U.S. market.
The analyst firm Maravedis forecasts that WiMAX operators are more vulnerable to the credit crunch than their 3G competitors. As of the third quarter of 2008, BWA/WiMAX subscribers reached 2.68 million, a 91% increase from the third quarter in 2007.
However, global service revenue is losing pace because of a slow down and a decline in WiMAX adoption. Adlane Fellah, Maravedis CEO, said WiMAX is also losing ground to LTE.
“In the PR battle, WiMAX has been losing momentum in favor of LTE as it becomes clear that LTE will become the dominant 4G technology among [tier-one] mobile operators worldwide,” Fellah said in a statement.
Alvarion official said the economic downturn will weed out weaker WiMAX vendors and they expect fewer competitors at the end of the year.
As for replacing Nortel, Alvarion officials said its strategy will continue to involve partnerships.
“Because of Nortel’s bankruptcy, it will impact us in the short term,” Sharma said. “We don’t see any impact in the long run. . If another company comes to us, we will listen. But we are watching the economy, and we will be careful in who we do business with.”