January 6, 2010 / 6:25 PM / in 8 years

PREVIEW-DragonWave rally may hold on another upbeat quarter

* WHAT: Q3 results

* WHEN: Jan 7 after market

By R. Manikandan and Koustav Samanta

BANGALORE, Jan 6 (Reuters) - DragonWave Inc DWI.TO, a Canadian radio transmitter maker, is expected to give an upbeat outlook topping analysts’ expectations, led by higher revenue from its key customer Clearwire Corp CLWR.O, raising hopes that the stock may rally further.

DragonWave’s shares have surged almost 11 fold in the last one year as wireless service providers have scampered to roll out and improve their mobile broadband networks.

The Ottawa-based company designs and manufactures microwave equipment for broadband wireless systems for network operators and service providers worldwide.

Wireless service provider Clearwire, which is building a WiMax-based nationwide network in the United States, accounts for more than 70 percent of DragonWave’s revenue.

Analysts say DragonWave, which is highly dependent on the growth of WiMAX networks, needs to enhance its customer base of large service providers to get rid of the often unpredictable order patterns.

“I am expecting a strong quarter with very good sequential growth, primarily driven by accelerated deployments at their largest customer Clearwire,” analyst Michael Walkley of Piper Jaffray said, adding that Clearwire could represent a greater percent of revenue this quarter.

The company, which currently expects its revenue in fiscal 2010 to exceed C$150 million, may further raise the outlook, Walkley said.

Analysts on average are expecting the company to earn 25 Canadian cents per share, on revenue of C$49.1 million, according to Thomson Reuters I/B/E/S.

“While we expect that third-quarter results will be dominated by Clearwire-related revenue, we believe that non-Clearwire revenue will be driven to a new record by orders from Globalive and Yota during the quarter,” Canaccord Adams analyst Peter Misek said in a note dated Jan. 4.

Misek, who has a “buy” rating on DragonWave stock, expects large wins from North American carriers will provide the company with a strong footing entering calendar year 2010.

“They (DragonWave) have been accelerating their deliveries to Clearwire. This should be a strong quarter for them and probably should be strongest for the year,” analyst Todd Coupland of CIBC World Markets said.

Coupland, who has a “sector outperformer” rating on the stock, said out of his third-quarter revenue expectation of C$56 million, C$45 million would come from Clearwire.

In October 2009, DragonWave said it had strong order bookings, leading to a 60 percent surge in its order backlog since the end of fiscal second quarter.

Though revenue dependency on a single customer is a concern, DragonWave could witness more growth as bigger players such as Verizon Wireless and AT&T T.N play catch-up in deploying their next-generation networks.

“DragonWave needs to complement its Clearwire deployment with one or more additional large contract wins. The obvious candidates include AT&T Mobility and Verizon Wireless,” National Bank Financial analyst Kris Thompson said in a note dated Jan. 4.

Verizon Wireless, which is testing 4G service, plans to deploy it in 25 to 30 markets by the end of 2010, while AT&T plans to start the service in 2011.

DragonWave shares, which have surged 32 percent and outperformed Toronto SE 300 composite index by 23 percent in the last three months, were up 1 percent at C$12.03 in afternoon trade Wednesday on the Toronto Stock Exchange. (Reporting by Koustav Samanta in Bangalore; Editing by Dinesh Nair and Gopakumar Warrier)

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