Needham & Company on Communications Infrastructure: MWC Barcelona Wireless Infrastructure Takeaways

Needham & Company on Communications Infrastructure: MWC Barcelona Wireless Infrastructure Takeaways

Analyst Richard Valera, said, "Two prominent themes on the wireless infrastructure side at MWC were small-cell network architectures, or HetNets, and Wi-Fi for 3G/4G data-offload—both have emerged to deal with overloaded 3G/4G wireless networks. In our coverage universe, Radisys (Nasdaq: RSYS)(Buy) is the most direct play on small cell architecture through its exposure to the pico cell market. In the Wi-Fi offload space, we see Smith Micro (Nasdaq: SMSI)(Hold), with its Mobile Network Director client, as the best positioned of our companies under coverage. Other relevant companies include privately held Ruckus Wireless, the leading carrier-class infrastructure provider (aside from Cisco (Nasdaq: CSCO)(NotRated), Alvarion (Nasdaq: ALVR)(NotRated), which has a carrier Wi-Fi business through its Wavion purchase, and privately-held Stoke Networks, which provides a mobile gateway that can securely enable Wi-Fi offload."

Notes from companies covered at Needham include:

Aviat Networks (Nasdaq: AVNW)(Buy) - Management acknowledged that despite guidance for flattish revenue in March Q ($100-110MM vs. $105MM in Dec. Q), bookings strength over last 6 quarters (5 of 6 Qs with positive book:bills), likely support a higher revenue level over the relatively near term, notwithstanding the lumpiness of the company’s service business.

Overall takeaway: given current valuation of 0.16x EV/F12E sales, which we believe discounts minimal, if any, growth we think prospect of improving cash performance and/or modest top line improvement in relatively near term could drive upside in the shares from here. That said, given the potential multi-year nature of the new architecture rollout that would be necessary to compete effectively in international markets, we are not likely to stretch on valuation if the stock gets a meaningful bump from any near-term revenue recovery.

Radisys (Nasdaq: RSYS)(Buy) - We met with RSYS CEO Mike Dagenais at MWC to discuss RSYS’ product introductions and business trends. Radisys introduced two new products at MWC: a new network appliance box, the RMS-220, which could enable RSYS’ OEM customers to deliver more powerful DPI-based solutions; and an upgraded media server platform, which should enable OEMs to deliver video-based (as opposed to voice-based) services with RSYS’ media server platform.

Overall takeaway positive. Overall, we came away feeling the tone of business is solid at RSYS. While the precise contour of the 2H12 revenue ramp we have modeled may be difficult to call given the dependency on the pace of 4G network buildouts, overall management sounded confident that they had the design wins in hand to support a significant ramp in 2H12.

Acme Packet (Nasdaq: APKT)(Hold) - We met with Seamus Hourihan, Acme’s Senior Vice President of Strategy, PLM and Marketing at MWC. The discussion focused mainly on the competitive landscape and Acme’s VoLTE opportunity.

Overall takeaway: While we’re Hold rated on Acme due to a valuation as we find it difficult to justify near term multiple expansion given anemic near term guidance, we acknowledge that the lowered 1H12 guidance (that implies negative year over year growth for both quarters) certainly sets the company up better to meet or exceed numbers than in it was in the back half of last year. We also acknowledge that on a longer term basis, the company appears well positioned to benefit from the expected VoLTE product cycle in 2013 and beyond.

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