Wireless Stock Watch: With Nortel bankrupt, a cloud lifts for Airvana

The news that bankrupt Nortel Networks is selling its wireless infrastructure business to Nokia Siemens Network (NOK) bodes well for Chelmsford, Mass.-based Airvana (AIRV). Airvana, which has been in the wireless infrastructure business since it was founded in 2000, provides software that governs and manages the flow of data across networks, to enable wireless broadband service over CDMA networks.

But my concern about Airvana has always been over its dependence on Nortel Networks for its infrastructure equipment which incorporates Airvana's software into its hardware. Nortel, in fact, represented 95 percent of Airvana's $9.2 million in revenue for the first quarter of 2009.During Airvana and Nortel's relationship, there have been times when Airvana looked especially vulnerable. In 2007, for instance, Airvana went public at $7 per share in a frothy market. But the shares did not perform well, hitting $5.03 per share. One reason for the lack of enthusiasm for the stock was that orders from Nortel dried up when wireless carriers took a breather and slowed their purchase orders to Nortel in the first quarter.

Despite Airvana's vulnerability, the two companies continued to work closely together. Even when Nortel announced in January that it was filing for Chapter 11 bankruptcy protection, it went on to inform Airvana that it would still continue to purchase goods and services and that it considered Airvana a long-term partner and a key supplier.

Worrisome, no doubt, for Airvana since Nortel already owed it $22 million for products and services. (That number went up to $36.4 million through the date of Nortel's bankruptcy filing.) It wasn't clear if Airvana would ever see those funds as the receivables were now subject to Nortel's bankruptcy proceedings.

Monday morning brought relief with the news that Nortel's wireless network infrastructure business would be liquidated and sold to Nokia Siemens Networks. Airvana's chief executive officer Randy Battat said, "Nortel's proposed sale of its CDMA business is positive news for Airvana and for Nortel's customers. As a long-term partner and key supplier to Nortel, Airvana has played a vital role in serving the needs of these customers during the bankruptcy process."

For investors in AIRV, this should mean good things. By working with Nokia Siemens Network, Airvana should now have more stable support than it has had in the past for additional network builds, especially since Nortel's bankruptcy did put the breaks on opportunities in some regions.

The stock, which closed today at $5.79 is down about 4 percent year-to-date. But with a price-to-earnings ratio of 15.9 compared to 21.9 for the industry, no debt, $198 million in cash, and a cloud that has been lifted, Airvana's shares should have more upside potential.
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