The Nextwave enigma

Tuesday, June 19, 2007

For a while now, I have been trying to resist my temptation to jot my thoughts on Nextwave Wireless. But its product announcement and the acquisition of a European WiMax company has prompted me to do just that.

Nextwave is an enigma to me because I am yet to figure out where they stand in the WiMax world. Given that they are neither one of the first players in this space nor one of the better known bigwigs, the heavy financial activity surrounding them comes as a surprise. Are they genuine or are they a hype? What are they upto with so much spectrum and so many companies under their kitty while generating a paltry $7.7 million in revenue? What makes investors bullish on Nextwave? Do they have a viable business model this time around? These and a lot more questions come to mind each time there is a news about this company.

The genesis of Nextwave's current avatar is also a cause for scepticism. Nextwave as we see today is a morphed version of Nextwave Telecom, the company that bought a lot of spectrum in 1996 and went bankrupt in 1998. Nextwave Telecom was engaged in a long legal battle with FCC and won some of the proceeds of the re-auction of the spectrum allotted to them. This time around, it is almost as if they are betting on WiMax to be used with the spectrum they owned! The point is that the founders of Nextwave are service providers at heart. They are now attempting to provide a 'wholistic solution' primarily targetting companies wanting a part of the wireless cake without time-to-market delays. Examples of prospective customers quoted include google which does not want to be excluded from the impending wireless technology explosion, an event that other rank outsiders like Apple have already ignited.

What is more of a mystery is the acquisition game-plan. For example, though IPWireless came very cheap for their IP portfolio and their product offering, one can imagine a company like Interdigital being more of a natural acquirer given their synergy in 3GPP and other TDD-UMTS activities. GO networks, on the other hand, is a fairly straight-forward acquisition: Wi-Fi expertise for less than $15 million, paving the way for integrated WiMax-WiFi chips, should WiMax hit it big. This week's acquisition of WiMax Telecom AG is also more in line with a linear thought process:pave the way for a wholistic WiMax offering in all attractive markets. The multiple acquisitions happening at a rapid pace without a visibly cogent business plan raises red flags in my mind. Either the founders are great visionaries with a clairvoyance for the wireless future or I am just a pessimist, and a naive one at that.

While the business model is tenuous (obviously, the investors do not believe so especially with a market capitalization of around $850 million), Nextwave has, on the other hand, aggressively built a very good technical team. The pay-roll boasts of some of SD's best OFDM talent and also bright young PhDs. Several of their senior/middle management positions are being held by members of the disbanded Nokia CDMA unit out of San Diego. Their advanced technology group has been working towards quality OFDM products with serious research and development on both Physical and MAC layers of WiMax. They have already grown to around 750 and don't seem to be stopping by the looks of their 'careers' web-site. This is definitely a wise move since it is creating value for the company while attempting to become the leading innovators in the space. In that sense, Salmasi's Qualcomm roots seem to be the guiding light.

So, is a bright work-force enough to offset the bad vibes from the past? Is Nextwave right in putting all its eggs in the WiMax basket alone? Should we be following this one yet? Not yet, not me as yet! I would prefer to wait for something more concrete, some solid business deals that ratify their business model. For the moment, it would be difficult to shake the past off their back. So, I plan to sit back, watch them passively while admiring their intent and aggression.

Posted by Vijay Nagarajan at 10:15 PM  

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