DragonWave's Shares Got Crushed: What You Need to Know

By Anders Bylund | More Articles
November 23, 2011 | Comments (2)

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Wireless network equipment maker DragonWave (Nasdaq: DRWI ) shares fell as much as 10% on moderate trading volume, like a fire-breathing dragon reduced to mere embers.

So what: Nokia (NYSE: NOK ) and Siemens (NYSE: SI ) just announced that their Nokia Siemens joint venture will slash 17,000 jobs by 2013, sending shockwaves across the wireless infrastructure industry. New competition from Chinese network builders is making it harder to run a profitable infrastructure business; DragonWave rivals Ceragon Networks (Nasdaq: CRNT ) and Alcatel-Lucent (NYSE: ALU ) also fell hard on the news.

Now what: DragonWave is buying Nokia Siemens' microwave networking operations in a supposedly game-changing $20 million cash-and-stock deal. Under that deal, Nokia Siemens becomes a major DragonWave customer as most of Nokia's microwave needs will be filled by the acquirer. But if the Finnish-German consortium is giving up on network installations, which is what this looks like, the value of that deal is eviscerated. On the brighter side, DragonWave avoids earn-out payments of as much as $100 million if the new division doesn't reach certain sales targets.

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Fool contributor Anders Bylund holds no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Ceragon Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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Report this Comment On November 24, 2011, at 1:04 PM, jopow wrote:

When somebody hurried to issue an opinion, they certainly can open up the door to mistakes. We have a glaring mistake on this opinion today. NSN
is doing a restructuring in preparation to an IPO in order to boil down the business into the new mobile telecom world that they desire to focus. Times are changing in telecom world, where not as many personnel may be needed to handle older systems and technologies that are not going to be sold. NSN happens to have world wide exposure to cutting edge mobile telecom equipment.
As it relates to DragonWave, the news is actually the opposite. NSN is going to more heavily rely on DragonWave's partnership to deliver superior microwave backhaul, long distance and short distance. Also, this announcement has nothing to do with the backhaul transit and maintenance business operations that are being acquired and will close next quarter. That business purchase will be a very profitable revenue stream as that business is integrated and managed to its highest potentials.
Report this Comment On December 02, 2011, at 6:36 PM, bobthebuilder01 wrote:

Check out this joint press release from Broadband Antenna Tracking Systems and Dragonwave. Mobile Broadband Links at 800 mbp?

http://fixed-mobile-convergence.tmcnet.com/topics/mobile-com...

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