Have You Seen This Winner in the 4G Wars?

Wireless radio towers are useless without antennas and amplifiers. At a time when every phone service provider is planning or building brand-new 4G networks, it stands to reason that the companies that build those basic tower components will benefit from the build-outs.

And so it is that wireless equipment manufacturer Powerwave Technologies (Nasdaq: PWAV  ) reports a 13% year-over-year revenue boost for the third quarter, landing at $157 million. With stronger sales and reasonably fixed costs comes stronger profit margins as well, so the company swung to $0.05 of GAAP earnings per diluted share compared with a $0.01 loss per share a year ago.

Management expects that "strong North American wireless capital spending patterns should remain throughout the next year," which means that the company will lean on the needs of Verizon (NYSE: VZ  ) , AT&T (NYSE: T  ) , and Sprint Nextel (NYSE: S  ) to boost its own business. Powerwave supports both the WiMAX and the LTE 4G standards and should be able to grow the revenue share of those technologies very significantly from the 10% portion they contribute today.

Believe it or not, there is still strong demand for older wireless technologies, even in fairly developed markets like North America. Powerwave collects about half of its revenue domestically, and equipment for services older than 3G also stand for about half of the sales. You don't need a Venn diagram to figure out that there's a fair bit of overlap there.

Those build-outs have made the equipment industry into a hunting ground for conglomerates and private equity firms looking to capitalize on the opportunity. Powerwave rival ADC Telecommunications (Nasdaq: ADCT  ) is being swallowed by electronics generalist Tyco Electronics (NYSE: TEL  ) , and CommScope (NYSE: CTV  ) is in intimate talks with the Carlyle group. Powerwave didn't exactly blow the lid off the third quarter, but it was a workmanlike effort from a quality company that could turn some heads among larger and richer telecom businesses. I'm not saying that Powerwave will get buyout offers, but the company did increase its chances of a quick exit option this week.

Follow Powerwave, its business, and the potential buyout by adding the stock to your watchlist. Then you can bounce down to the comments box and share anything else we should know about this stock.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Sprint Nextel is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On October 29, 2010, at 6:01 PM, hodedofome wrote:

    I bought PWAV near the worst of the recession at $0.50 and remains the best performing stock I've purchased in my short 5 year investing career. I found out about it from an article in Smart Money called "10 stocks for 10 years." I followed all the stocks that were recommended in the article and then purchased the one that had gone down in price the most. A silly strategy to most people, but I got lucky on this one.

  • Report this Comment On February 09, 2011, at 7:01 AM, rkumar02 wrote:

    Andrew - Whats you take after the 4th quarter earnings for PWAV -

    rkumar02

    duke member ..

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