On Mar 14, 2014, we issued an updated research report on
Novatel Wireless Inc.
). Increased competition, higher operating expenses and a weaker
outlook for the upcoming quarter has resulted in such poor
performance for the company.
Except for one quarter Novatel has delivered negative earnings
surprise in the remaining three quarters last year, with an
average miss of 6.19%. The company reported poor financial
results for the fourth quarter of fiscal 2013 with both the top
and the bottom line missing the respective Zacks Consensus
Estimate. Increased competition, higher operating expenses and a
weaker outlook for the upcoming quarter led to the dismal
Increased demand for mobile broadband will help Novatel going
forward. The company currently serves the three large wireless
operators in the U.S., namely,
Verizon Communication Inc.
) Verizon has launched MiFi 4620 LE with an extended battery
pack. Moreover, cost saving initiatives like downsizing workforce
and cutting operating expenses by 31% and 34%, respectively, are
expected to boost margins.
Recently, the company entered into an agreement with Vehicle
Tracking Systems (VTS), a popular fleet management system
operator, to supply MT 4100 and MT 3050 devices to support the
VTS Silent Passenger application. The deal will also facilitate
VTS' migration from GPRS to CDMA technology.
Novatel has won a contract with Teleges, one of the leading
commercial vehicle telematics service providers. Novatel is
deploying its popular SA2100 telematics device with Teleges'
fleet management location provider. The company also struck a
deal with DigiCore Holdings Ltd., a leading provider of advanced
machine-to-machine (M2M) communication and telematics solutions,
to supply various versions of Novatel Wireless' advanced MT 3060
OBDII technology. Hence, striking deal with two top telematics
service providers will certainly drive Novatel's Commercial
However, we anticipate increasing competition for Novatel's MiFi
product line. Several latest versions of smartphones have inbuilt
WiFi capability. Low-cost Asian manufacturers, including ZTE and
Huawei Technologies, have already launched their own version of
intelligent mobile hot spots creating competitive pressure on
Novatel's business depends on a limited number of customers, who
represent a significant portion of the company's total revenue.
Loss of any of these customers will adversely affect the
company's business model. Moreover, the company's business is
less diversified geographically as North America accounts for
nearly 97% of its total revenue.
Novatel currently carries a Zacks Rank #4 (Sell).
NOVATEL WIRELES (NVTL): Free Stock Analysis
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