DragonWave (Nasdaq: DRWI ) just can't get away from Clearwire (Nasdaq: CLWR ) fast enough.
The third-quarter report from DragonWave wasn't good. Revenue fell 48% year over year to $27 million, and the year-ago period's $0.35 net income per share turned into a breakeven performance. Worse, next quarter will be even weaker, with only $15 million in expected revenue.
The wireless backhaul specialist is working on diversification, and it's definitely made progress. Clearwire represented only 52% of sales this quarter, down from 87% three quarters ago. Moreover, DragonWave's order book had entries from 31 new customers, a respectable expansion from the 82 existing customers making an appearance.
DragonWave is also defending its margins, rather than seeking extra revenue at any price. The company generated $6 million of operating cash flow this quarter, and it rests on a solid balance sheet with $95 million in cash and no debt. DragonWave should be able to coast along until its customers get back to ordering new backhaul equipment.
And they will. Smartphones and tablets are placing entirely new loads on wireless data networks across the globe, and telecom operators need to stay ahead of that demand curve to remain competitive. Now DragonWave simply needs to steal some business belonging to much larger competitors LM Ericsson Telephone (Nasdaq: ERIC ) and Alcatel-Lucent (NYSE: ALU ) , because it's a large market, and DragonWave is grazing in just a small corner of it. The opportunity surrounding this company is huge.
For DragonWave, success will come down to execution and smart sales. Management clearly doesn't expect to turn everything around next quarter, which gives us at least another three months to watch wireless infrastructure trends and decide what to do with this stock. Its five-star Motley Fool CAPS rating out of five is a good sign, and my own thumbs-up rating is beating the market by a wide margin. Follow in my all-star footsteps -- it's fun, free, and educational!