Over the last several years Alvarion has succeeded in establishing a strong position in the WiMAX space. Its main focus was to be the leading provider of WiMAX solutions to service providers, but now Alvarion is redefining its business strategy. In its Q4 2010 earning’s conference call, the company stated that this year they will go through a transition to refocus more on addressing the vertical market segment, including local governments, utilities, education and others that might require wireless broadband networks to connect branches, remote access and such, as a way to improve profitability. Alvarion has addressed the utilities segment for a while now, however this was not its core business as it concentrated more on WiMAX for carriers. 

This new shift is dictated by tough market conditions, and reveals the blunt reality that the WiMAX equipment market among telecom providers is simply not large enough to sustain growth. Key prospects such as the Indian market and the US stimulus package have not materialized, and this is affecting the bottom line of specialized vendors like Alvarion.    

The transition won’t be dramatic in 2011, but will happen overtime. For instance, in Q4 2010 the enterprise-vertical segment represented 40% of revenues for Alvarion, and it’s possible that this year’s revenue share will be about the same for this segment; however Alvarion’s investments going forward will be larger in the vertical market segment than in any other.

Not only has the economic downturn affected telecom carriers and vendors, but we have of course observed the preference of more and more operators to select LTE rather than WiMAX; this is also a factor in the profitability of many WiMAX vendors and other WiMAX supporters. Although LTE deployments are still few around the world, the technology is constantly gaining momentum. Various operators who initially thought to deploy WiMAX have changed their strategies in favor of LTE; such is the case of important Indian operators like RIL, who last year obtained 2.3GHz TDD spectrum.

In this arena, Alvarion commented that large-scale WiMAX programs were expected to materialize in India in 2010, but this did not happen. Alvarion was possibly referring to projects with Barthi Airtel for example, an operator with whom it has already deployed WiMAX in the 3.3GHz band. Barthi Airtel was one of the successful winners of 2.3GHz spectrum in the Indian spectrum auction held in May 2010, in which it is possible that we will see the deployment of a TD-LTE network rather than a WiMAX deployment. Alvarion was selected by a customer in India for a project worth US$10 million dollars, and expected to generate revenues for Alvarion sometime in Q2 2011, but this project has not yet materialized.

The US broadband stimulus program (a package created in early 2009 by the federal government that included US$7.2 billion for broadband grant and loan programs, of which US$4.7 billion was directed at broadband with the aim to award grants to accelerate broadband deployments in underserved areas) did not bring more profit for Alvarion in 2010. The company expected larger deals, but large last mile wireless programs did not really benefit.

There were some accomplishments for Alvarion in 2010, such as its contract with Barrett Xplore in Canada, which we expect to be a significant WiMAX deployment in rural Canada of hundreds of thousands subscribers. Barrett Xplore will have installed 1,200 towers by the end of 2011. Also notable are the Linkem project in Italy, the Open Range project in the US, among other network expansion projects of existing Alvarion customers such as TIGO Paraguay and Safaricom in Kenya. 

Neither Linkem’s nor Barrett Xplore’s projects recorded any significant revenue for Alvarion in Q4 2010, however we anticipate brighter revenue records for Q1 and Q2 2011, as Barrett Xplore commercially launches 4G in the first rural areas in Canada in the first quarter, and as the new contract with the aforementioned Indian customer materializes in the second quarter of this year.

So Alvarion will continue offering WiMAX solutions to its large installed base of service providers, but its strategy going forward will be to invest more resources in the vertical market space. We believe that this new strategy will help the company finally become profitable, even if it is at the expense of emerging as a major player. This is a viable trade-off we believe, one that could make Alvarion a more attractive target for acquisition in the future.

MARAVEDIS is a leading analyst firm focusing on 4G and broadband wireless technologies and markets.

Author: Cintia Garza, Team Leader 4GCounts & Market Analyst CALA