Updated Research Report on Novatel - Analyst Blog


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On Mar 14, 2014, we issued an updated research report on Novatel Wireless Inc. ( NVTL ). 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 performance.

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. ( VZ ), AT&T Inc. ( T ) and Sprint Corp. ( S ) 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 telematics business.

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.

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 Report

SPRINT CORP (S): Free Stock Analysis Report

AT&T INC (T): Free Stock Analysis Report

VERIZON COMM (VZ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: NVTL , S , T , VZ

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