Airvana Inc.: See the world in 3G

Paul Rolfes | Apr 18, 2008 6:20am EDT | Comment

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Consumers are cutting the cord, severing the tether to the landlines that once were mandated to talk to the world. No longer are they feeling beholdin’ to AT&T Inc. (NYSE:T), Verizon Communications Inc. (NYSE:VZ) or any of the other traditional providers of Plain Old Telephone Service.

Viva la revolution cellular.

Admittedly, wireless services are not without shortcomings. Dropped calls are not completely a thing of the past, but recent technology developments, combined with a network buildout by the carriers, are making strides in minimizing callus interruptus.

One of the hotter technologies under development is known as “femtocell,” and an 8-year-old Massachusetts company, Airvana Inc. (Nasdaq:AIRV), is working to help take it mainstream. Think of it as something akin to a cell tower of your very own: rather than depending on an outside signal that might fade inside a building, the femtocell is a small base station that delivers cellular communication over a broadband Internet connection. Adding range in the home to the home on the range — or in the condo complex — could help popularize 3G wireless services in the important U.S. market.

Airvana has a portfolio of network infrastructure products based on Internet Protocol technology, which provides the missing link between wireless service providers and broadband. More than 30 operators around the world use Airvana’s products, and the company has OEM agreements with Alcatel-Lucent (NYSE:ALU), Motorola, Inc. (NYSE:MOT), Nortel Networks Corp. (NYSE:NT) and QUALCOMM, Inc. (Nasdaq:QCOM).

Three of the five analysts surveyed by Thomson Financial who cover Airvana rate the stock at “buy” or “strong buy,” with the other two calling it a “hold.” The median 12-month share price is $6.

Airvana went public last summer, with its initial public offering opening on July 20 at $7. The $8.35 that it hit on July 24 remains its 52-week high. Shares traded as low as $4 on Feb. 8, during a stretch of an overall market retrenchment. The bottoming occurred in the days following the release of upbeat 2007 financial results. On Thursday, Airvana’s shares closed at $6.69.

Nearly a year ago, ahead of its IPO, Airvana acquired 3Way Networks, the maker of home base stations for UMTS markets — one of the primary standards for wireless 3G networks.

Airvana’s CDMA HubBub femtocell personal access point garnered recognition at the recent CTIA Wireless trade show in Las Vegas. In one of the E-Tech Awards categories, it ranked second to another femtocell end-user device, the Samsung Electronics UbiCell — which Sprint Nextel Corporation (NYSE:S) is using in trials of its Airave service.

In reporting its 2007 results in early February, Airvana said fourth-quarter revenue grew to $145.6 million, from $1.3 million the year before, thanks to a significant software rollout. Net income for the three months ended Dec. 31 was $104.2 million, or $1.46 a share, versus a loss of $19.1 million, or $0.30 per share, in the 2006 period.

Full-year results were similarly impressive, rising to $305.8 million last year, from $170.3 million for 2006. Net income doubled, to $153.3 million, or $3.53 per share, compared with the $74.1 million, or $1.17 per share, of the prior year.

Airvana reported non-GAAP billings of $142.2 million for 2007, up from $140.6 million in 2006. Fourth-quarter billings dropped to $33.3 million from $72.9 million the year before, which the company explained was due to an initial rollout of EV-DO software by wireless providers the previous year.

Airvana issued a 2008 outlook that calls for first-quarter revenue in the range of $7 million to $8 million, and billings of $33 to $36 million. Management also reiterated long-term goals for the next three to five years of growing billings 25%, with new products accounting for half its revenue.

The company noted that it expects billings in the first half of the year “to be somewhat lower” than the $78 million reported in January to June 2007. Airvana does see a pickup in the second half of 2008 on expected software releases and an expansion of EV-DO networks.

Analyst Jeff Kvaal of Lehman Bros. kept his rating of Airvana at “overweight” but trimmed his stock target price to $6 from $8.50 when shares were trading around $5.28. While pleased with the results, and first-quarter billings expectations that exceeded his outlook, Kvaal expressed concerns about limited visibility into the second half of the year and noted that the company is facing a higher tax rate.

Deutsche Bank’s Brian Modoff, who has Airvana at a “hold” with a $6 price target, echoed Kvaal’s sentiment in pointing that the “long-term potential in converged networks is balanced against a maturing core CDMA business.” He also noted that, “Our checks indicate that carriers are still ironing out service details before rolling out femto service.”

Morgan Stanley’s analysts in an April 10 tech hardware update gave Airvana headline treatment, noting a rise in share price: it’s up more than 27% this month, having ended March at $5.23. Analyst Scott Coleman rates Airvana at “overweight” and is looking for revenue of $33.9 million from the just-completed quarter, with his earnings-per-share estimate equaling the consensus $0.06.

After a round of robust developments, Airvana’s track record could lead interested investors to believe that the company isn’t likely to issue any “May Day” distress signals when it releases first-quarter results on May 1.