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The success that fixed wireless broadband equipment companies are having is linked directly to which sector of the market they're playing in and the commitment of their partners to deploy their products, analysts say.
San Jose, Calif.-based Netro Corp. is being challenged to overcome an apparent lack of interest by its main partner, Lucent Technologies, in rolling out the networks that use Netro's products.
"Visibility into the next couple of quarters is very low due to capital market concerns, Lucent's financial woes and weakness in the North American point-to-multipoint market," Epoch Partners analyst Seth Spalding wrote after the company reported fourth quarter 2000 earnings. Netro gets 85 percent of its revenue from Lucent.
Vyyo Inc., another manufacturer that's based in Cupertino, Calif., has a much brighter outlook, with 2001 revenue expected to grow by 30 percent on a sequential quarter-to-quarter basis.
While Vyyo's biggest opportunity is domestic, Netro may have better luck internationally, particularly in Europe and Latin America, where business demand for high-capacity bandwidth isn't as high as it is in the U.S.
Vyyo's target market, the multichannel multipoint distribution service (MMDS) spectrum bought by Sprint Inc. and WorldCom Inc. is inherently better suited for a low-end, consumer type business than Netro's high-end and high-cost local multipoint distribution service (LMDS) products, says Needham & Co. analyst Rich Valera. In the U.S., where business customers are demanding bandwidth capacity of 20 Mbps to 30 Mbps, service providers are finding multipoint technology just isn't suitable for large companies with thousands of employees on a single hub.
"The wireless CLECs-Winstar, Teligent, Nextlink and ART (Advanced Radio Telecom)-have concluded they don't need a multipoint architecture to sign up big customers. They're using either point-to-point or high capacity ring architecture, similar to fiber rings, but done with radios. Those are much more suited to bandwidth demands of US businesses," Valera says.
Netro's also had trouble getting its price structure down on its user receiver products that are aimed at the LMDS market that plays in the 27.5 GHz to 29.5 GHz spectrum and higher.
"To make this a viable model, you have to reduce the cost of equipment sufficiently so that you can make money on customer premise equipment (CPEs)," Valera says.
Netro's fourth quarter loss was $2.5 million, or 5 cents a share. It had $22 million in revenue, up only 7 percent from the previous quarter. Chief financial officer Sanjay Khare says the company expects to see flat-to-negative revenue growth in the first quarter 2001 and sees ongoing declines in its gross margin as it shifts to providing fewer base stations and more CPEs.
Both Sprint Inc. and WorldCom Corp. have orders for Vyyo's point-to-multipoint equipment for their fixed wireless networks. WorldCom is the main driver for Vyyo earnings over the next few quarters, says Valera. WorldCom's just beginning to deploy its fixed wireless network and will need Vyyo's base stations initially, which carry much higher margins than do customer premise equipment (CPEs).
Vyyo reported a pro forma loss of $5.6 million, or 15 cents a share, and $6.1 million in revenue in the most recent quarter. It had 2000 sales of $15.4 million and expects 2001 revenue to top $60 million.
"Vyyo's achievements in 2000 and the high growth anticipated in the broadband Internet access market give us confidence in our financial plans for 2001," says chief executive officer John O'Connell. The company expects pro forma net income to be breakeven in the fourth quarter and to become profitable beginning in 2002.
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