NVTL

[David Randolph]

Thanks for the information La-Onda

In a research note published this morning, the analysts mention that the company's performance in 2H07 is expected to be robust, which is likely to continue into 2008. Novatel Wireless' sales over the near term are expected to be primarily driven by the new USB727 Ev-Do Rev A modem and the release of MC950D for operators in Europe, the analysts say. The EPS estimate for FY08 has been raised from $1.30 to $1.40.

Yes, $1.40 seems more likely than the $1.21 analysts, on average, are expecting:



I think we'll see several more of these upgrades as the 15 analysts currently covering NVTL start looking into 2008 numbers.

We've had two more press releases:

• Novatel Wireless Wins AeA Award for USB Product Line
Business Wire (Mon, Oct 22)

• Novatel Wireless Climbs Deloitte's Wireless Fast 50 Rankings
Business Wire (Tue 8:00am)

The "juice" I get from all this is the following:

«The company continues to see increasing demand across all major product lines including its Ovation USB devices, Merlin PC and Express cards and Expedite embedded modems as enterprises and consumers turn to 3G wireless broadband access solutions in place of legacy DSL and landline connections.»

These comments are in tandem with my expectations.

I'll keep holding NVTL for the long term.

[la-onda]

main reason for drop is documented on SWIR board!

NVTL: Short Interest DN 5.1% to 7.9M in Mid Oct 2007
Wednesday, October 24, 2007 16:24ET

According to new short interest data from NASDAQ, short interest for Novatel Wireless Inc (NasdaqNM: NVTL) DECREASED 5.1% to 7,895,944 shares as reported in mid-October, 2007.

SYMBOL     END SEPTEMBER     MID OCTOBER          CHANGE       %CHANGE  DAYS/COVER
--------   -------------   -------------   -------------  ------------  ----------
NVTL             8,316,721                7,895,944           -420,777        -5.06%           7

Based on NVTL's 20-day average daily share volume of 1,133,820, it would require approximately 7 day(s) of buying to cover this short interest.

[David Randolph]

NVTL went down 8.6% yesterday because of the following news:

• Qualcomm Introduces Gobi Global Mobile Internet & GPS Solution for Notebook Computers
PR Newswire (Wed 12:43am)

From reading this press release, it seems like QCOM, a $69 B mammoth, is working directly with HP (SWIR's costumer) and Vodafone (NVTL's costumer). It is easy to conclude that QCOM is walking around NVTL and SWIR, making a substitute and better product, and then selling it directly to notebook manufacturers.

If we read the Gobi's product website we get the same general idea.

However, we have SWIR's CEO words and a few informative posts by la-onda in SWIR's thread which point in another direction:

«In an interview Wednesday, Sierra Chief Executive Jason Cohenour said the announcement has positive and negative elements with respect to Sierra. On the positive side, it means Sierra has a new product to sell, as Qualcomm indicated it intends to market the Gobi product through its customers, which include Sierra. On the negative side, Gobi makes it easier for other companies to do what Sierra does, he said. "(Gobi) lowers the bar for other competitive entrants," he said.»

«Qualcomm bypassing SWIR and NVTL doesn't exactly fit this graphic, so I'm skeptical.
Bypassing a manufacturer and making a product itself. Qualcomm makes chips, not boards. NVTL and SWIR are the embedded board and device manufacturers. Qualcomm would be violating their own business model if they decided to create their own embedded board based on the chipset.
Businessmodel from Qualcomm:
Qualcomm develops new technology through investment in R&D and strategic acquisitions and fosters competition by broadly licensing the rights to use its patented technology. Further, Qualcomm provides its customers the opportunity to easily and quickly develop and introduce their products by providing chips and software that integrate Qualcomm's technology. Additionally, Qualcomm has worked to reduce its customers' intellectual property costs and minimize intellectual property disputes within the industry through the cross-licenses it has obtained from a very large number of significant patent holders.»

Which way to go? As I read the available information on Gobi, I'm not sure if it needs SWIR and NVTL's products anymore. I see that the prior technologies needed a wireless device manufacturer to build the modems, but I'm not sure if Gobi isn't a chip put directly into the computer to allow for mobile connectivity to any mobile carrier.

It is very different to have QCOM as a direct competitor than to have the barrier lowered for the entrance of new small competitors. In the first case NVTL's business is basically destroyed. In the 2nd case it can only be damaged.

Anyway, I need to take care of my business, which is managing the Main Portfolio and explaining why I take the decisions I take with the limited information and knowledge I have.

As I look into my valuation model for NVTL, I have the 4 working variables of the model:



1) Dilution Factor

I have 8%. The share count grew 8.83% over the past 12 months, so I have a little correction to make here.

2) Revenue CAGR

I have 68%. Analysts are forecasting just 18.9% growth for 2008. However, NVTL's internal studies say the market for units shipped is expected to grow 53% a year, on average, between now and 2012.



Now I begin to worry that unit modem shipments growth won't be the same as revenue CAGR  because average selling prices may come down. It looks like Gobi's attempt is to lower the price for notebook manufacturers and mobile carriers to put mobile internet in consumers hands at the lowest possible price. I don't know about you guys in the US, but here in Europe one needs to pay 100 € to get the modem, and then about 30 euros monthly for the connectivity. I guess they're trying to eliminate the initial 100 euros, or pushing it down so it can be diluted in monthly payments.

Anyway, since analysts are calling for just about 19% growth, maybe/probably I'm being too optimistic in expecting 68% revenue growth. Let's bring this estimate down to 40%.

3) Final Net Profit Margin Estimate

I have 8%. That's what analysts are expecting for 2008 too. But now I wonder if it will remain this high for long, since I perceive there's a common interest, from Qualcomm, notebook OEM's and mobile carriers to squeeze the wireless device manufacturers or even bypassing them.

Well, I'm going to bring this down just a bit, to 6%.

4) EPS multiple estimate

I have 29.14, but that seems too rich now, since NVTL has several long term competitive threats. Due to what happened yesterday, I believe investors will always be afraid of a new product or technology showing up in the market and killing NVTL's products (even if that isn't the case with Gobi, which I'm not sure yet).

I say NVTL's earnings multiple will probably stand at around 18 for the long term, balancing the probable strong growth with the risk of its technology becoming obsolete.

I also need to make changes to the Initial Revenue (I had the 2006 number - I'll put the 2007 estimate instead) and the Initial Share Count (I had the Q1 2007 number - I'll change it to the Q2 share count).

The final results are the following:



The share price CAGR declined to 10.65%, from about 40%. As you're probably aware, I only consider investments attractive when I expect t least 16% share price CAGR over the long term. 10.6%, even though it is acceptable, isn't attractive enough to achieve my long term goal of an average annual return of at least 30% for my investments, so unfortunately NVTL must leave the Main Portfolio.

I'm a bit sad to sell NVTL with just a 54% or so profit, because I expected more, and at one point I had a 100% profit, I believe. On the other hand, I must take advantage of owning shares, and not the businesses themselves, because this way I can exit if I see trouble ahead with ease. The business owners are left with the pain and work to reinvent themselves, they're not as flexible.

I believe investing from a business perspective also means selling your investment if the business conditions turn sour and look for other, more promising investments.

The Trading Plan for NVTL is:

SELL.

[la-onda]

fiy:
NVTL: To Release Q3 Results Nov 05 [AMC]
Saturday , November 03, 2007 08:30ET

Novatel Wireless Inc (Nasdaq NM: NVTL) is scheduled to release its Q3 financial results on November 05, 2007, after the close of the market (AMC).

CONSENSUS ESTIMATES:
Q3 Revenue: $101.53 million
Q3 EPS: $0.28 per share

PREVIOUS PERIOD:
Prev Q3 Revenue: $55.55 million
Prev Q3 EPS: $0.04 per share

could be a nice Earnings play imho

[la-onda]

Q3 transcript:
http://seekingalpha.com/article/52913-novatel-wireless-q3-2007-earnings-call-transcript?source=yahoo
chart:

[la-onda]

Seeking Alpha update:

Looking For a Short Scalp on Novatel After Piper Note
posted on: November 15, 2007 | about stocks: NVTL   

Piper Jaffray is out with a cautious call on Novatel Wireless (NASDAQ:NVTL), saying that based on comments at QUALCOMM Analyst Day and discussions with QUALCOMM management, they believe new Gobi embedded solution is gaining more traction than previously anticipated. As a result, they are lowering their PC-related embedded module estimates for 2H08 and 2009, resulting in reducing estimates and price target on NVTL.

Notebooks featuring the multi-mode Gobi solution will have access to the high-speed mobile Internet services offered by network operators in virtually all parts of the world as the solution supports both CDMA2000 EV-DO and HSPA networks worldwide.

Based on comments at QUALCOMM Analyst Day indicating Gobi should ship in volume at a very competitive price by mid-2008, PJ believes this solution will facilitate increased competition for Novatel's embedded module segment. In fact, they believe the common software API and reference design for a software-defined configurable data module supporting both EV-DO Rev. A and HSPA with full backward compatibility, will enable price leaders to enter the market and lead to intense price competition.

Further, discussions with QUALCOMM management indicated strong early momentum for Gobi, with a design win at HP in-hand and strong interest from numerous other tier 1 notebook OEMs.

PJ is lowering their 2008 proforma EPS estimate from $1.45 to $1.38 and 2009 proforma EPS estimate from $1.55 to $1.29. Price target is cut to $19 from $26.

Notablecalls: Gobi was introduced on Oct 23, causing a sharp sell-off both in NVTL and SWIR. So, in that sense PJ's call does not highlight any new negatives. But it does bring the competitive problems to the forefront. PJ's not the only one out with cautious comments this AM. Deutsche Bank notes that revisiting last month's announcement on their Gobi platform the company expects to ramp up shipments of its embedded laptop module.

They see this as a drive to bring down the cost of embedding data connectivity and as a competitive to step to fend off WiMAX. This is a smart move, but one that is likely going to make things difficult for Novatel and Sierra Wireless, in DB's view.

All in all, I think there may be some more downside in NVTL following PJ's call. Just a short scalp, though.

[la-onda]

Novatel Wireless Collaborates with Qualcomm to Provide Gobi Global Mobile Internet Embedded Solutions
Tuesday November 27, 8:00 am ET
Notebook Manufacturers Benefit from Novatel Wireless' Complete Product Portfolio with Full Integration, Certification and Support

SAN DIEGO--(BUSINESS WIRE)--Novatel Wireless, Inc. (Nasdaq:NVTL - News), a leading provider of wireless broadband solutions, today announced that it is working with Qualcomm to add the Gobi (Global Mobile Internet) platform to the Company's broad portfolio of embedded mobile broadband access solutions.


"We believe our continued collaboration with Qualcomm benefits our OEM customers and further strengthens our value proposition. The combination of Gobi-enabled notebook computers, along with the unparalleled integration, certification and support that Novatel Wireless provides, is the ideal solution for notebook manufacturers interested in delivering high-quality mobile broadband data connectivity to its customers worldwide," said Rob Hadley, senior vice president of worldwide sales and marketing for Novatel Wireless. "We look forward to expanding our support of more than 60 current embedded OEM platforms by providing Gobi-enabled products in the second half of 2008 as part of our overall embedded product portfolio."

"Qualcomm's relationship with Novatel Wireless is important to our efforts to drive the widespread adoption of embedded cellular connectivity for notebook computers," said Mike Concannon, vice president of product management, Qualcomm CDMA Technologies. "We look forward to collaborating closely with a variety of industry partners to accelerate the worldwide availability of notebooks with multi-mode Gobi global mobile Internet, ensuring that the benefits of the technology are available to consumers worldwide."

The embedded Gobi solution for notebook OEMs from Novatel Wireless includes Qualcomm's MDM1000™ chipset, associated software and API, and a reference design for a software-defined configurable data module supporting both EV-DO Rev. A and HSPA with full backward compatibility and GPS functionality. By supporting worldwide standards, notebook manufacturers can deliver products with global connectivity capabilities while benefiting from greater efficiencies and a simplified user experience.

Modules from Novatel Wireless based on Qualcomm's Gobi solution will join Novatel's Expedite family of modules (E860D, E870D and E725), which deliver a rich user experience for integrated wireless capabilities and services ranging from e-mail active notification, multimedia streaming, video telephony, mobile gaming, corporate network access and web browsing.

[la-onda]

seeking alpha update:

Novatel (NVTL) and Sierra Wireless (SWIR) produce wireless datacards, usb modems, and embedded wireless modules in PCs to connect to carrier networks. They have enjoyed favorable pricing and strong margins as their stocks have run up over the last year. The bear case had always been that larger competitors would enter the market and price them out.

Well, it seems that the bear case is playing out now as Qualcomm (QCOM) has introduced their Gobi wireless solution and sources indicate that FoxConn will be producing an embedded module which should help to crush Novatel and Sierra Wireless' margins. The price point is rumored to be around $80 compared to the current $120 - $150 that NVTL/SWIR charge. Simple math tells you that two things will happen: 1) these two will face severe pricing pressure and, 2) they will lose business to the larger competitors (Huawei, etc). Compound this further with the fact that these companies are one trick ponies for the most part and you could find them trading in the single digits very soon.

UPDATE: Deutsche Bank recently published a report stating that Ericcson (ERIC) Mobile Platforms is offering an embedded module in the $40 range for 2008. This is a significantly worse (better) pricing situation for NVTL and SWIR. Consider this - currently, their bill of materials is around $80-100 to produce these modules.

I continue to be short these names.

[poli]

David:
Great call on selling NVTL.  Today it closed down 23% to close at 10.69.  At todays price taking that 50% profit looks pretty good now.  After 30 years of investing I feel its good lessons to review prior trades occasionally with preset company fundamentals to learn from mistakes and success's.  Thanks for all your hard work and all the other members who share there wealth of information here.  I have been here for some time but seldom post.  Each day I try to read posts in all the message boards to gain what ever knowledge I can.  Thanks again.  To all, good health and trading.
Poli

[David Randolph]

David:
Great call on selling NVTL.  Today it closed down 23% to close at 10.69.  At todays price taking that 50% profit looks pretty good now.  After 30 years of investing I feel its good lessons to review prior trades occasionally with preset company fundamentals to learn from mistakes and success's.  Thanks for all your hard work and all the other members who share there wealth of information here.  I have been here for some time but seldom post.  Each day I try to read posts in all the message boards to gain what ever knowledge I can.  Thanks again.  To all, good health and trading.
Poli

I just read this post, thanks Poli

Indeed, it was a good call to sell NVTL at $22.55, since the stock closed at $10.39 yesterday.

The earnings multiple on estimated 2008 EPS has been compressed to 8.3. I remember when NVTL traded as high as $30 and people didn't mind paying 30 times EPS for this stock. So, things change a lot and it doesn't necessary have to do with changes in fundamentals in terms of revenues and profits, the multiple expansions and compressions do the trick.

I've sold NVTL (and SWIR) mostly due to competition coming from Qualcomm (Gobi product). Some people have also expressed competition concerns on this thread. But SWIR has been holding up reasonably well:



Investors keep switching from preferring SWIR over NVTL and the opposite. Six months ago NVTL was more highly valued, now it's SWIR. In this case I prefer to go with NVTL, here's why:

- SWIR trades at 11.3 times 2008 estimated EPS, while it grows it by 8.8%;
- NVTL trades at 8.3 times 2008 estimated EPS, while it grows it by 12.6%.

I think NVTL has the potential to rebound to have an earnings multiple equal to the growth rate of 12.6, and that would mean 12.6*$1.25 = $15.75 per share.

But since we're talking "technimental" and more short term, I won't be this ambitious. Looking at the chart below I think NVTL will at least rebound to close the gap at $13.6, a 30.9% return from yesterday's close:



This looks like a potential inverted head & shoulders pattern to me. The right shoulder "theory" would be compromised if the stock were to close below $9.60, so I feel this is a good level for a bail out and cutting losses short.

The Trading Plan is:

1. Buy NVTL for the TM Portfolio at today's open.
2. Take profits at $13.6.
3. Exit with a small loss if the stock is set to close below $9.6.

[David Randolph]

The Trading Plan is:


1. Take profits at $13.6.
2. Exit with a small loss if the stock is set to close below $9.6.

[David Randolph]

The Trading Plan is:

1. Take profits at $13.6.
2. Exit with a small loss if the stock is set to close below $9.6.

[Garoh]

Good choice david 

Very soon we'll be at the target ...

Please take a look at this good stock (CALM)

I bought it wednesday  , It's a very good long term investment

[David Randolph]

Good choice david

Thanks Garoh, but we need to let the market judge this

Very soon we'll be at the target ...

We'll see. First, NVTL has to enter the "gap zone" at $11.83 and move above the 50 days SMA currently at $12.01.

Please take a look at this good stock (CALM)

I bought it wednesday  , It's a very good long term investment

I see it in the Watch List, posted by BigSully1, so I'll get there

The Trading Plan is:

1. Take profits at $13.6.
2. Exit with a small loss if the stock is set to close below $9.6.

[David Randolph]

The Trading Plan is:

1. Take profits at $13.6.
2. Exit with a small loss if the stock is set to close below $9.6.