Despite sale to China, DragonWave

When a company inks its first sale to China, it often has stars in its eyes over the revenue possibilities in that populous country.

Not Ottawa-based wireless Ethernet backhaul equipment maker DragonWave, which just signed a $1.4 million deal with an unnamed company. President and CEO Peter Allen admits his attention is riveted on the U.S., where the company is – for the time being – the sole wireless backhaul supplier to Clearwire’s fledgling WiMAX-based mobile broadband service.

“My job is to satisfy all of their needs all of the time,” Allen told financial analysts in a conference call Friday as he released DragonWave’s third quarter financial figures. “It’s what I think about every day when I wake up in the morning.”

Clearwire offers mobile WiMAX so far in only two cities: Baltimore – where it was initiated on a trial basis in September by Sprint and called Xohm – and Portland, Ore., where this month it launched a commercial service called Clear.

In December Clearwire Corp. took over Sprint Nextel’s Xohm WiMAX service , creating a new company that retains the same name.

DragonWave secured a deal to be Sprint’s Ethernet backhaul supplier, a contract Clearwire takes over. However, the slow rollout of service means DragonWave has yet to record serious revenue on the deal.

Meanwhile, the state of mobile WiMAX in Canada remains frozen. Primus Canada has been testing the technology for a year in Hamilton. Repeated calls to the company for comment on its progress have not been returned. Look Communications of Milton, Ont. has a small trial in progress, although it’s about to put its assets up for sale. Craig Wireless recently converted some of its Vancouver-area spectrum to mobile WiMAX, but has said nothing of its plans. While Clearwire has talked about extending the service to major U.S. cities, it isn’t clear what its rollout plans are, especially because the company is now saddled with debt and financial markets are in crisis.

Another problem is a shortage of devices subscribers can use. While Intel is betting laptop makers will include WiMAX capability soon in a number of their products, there are few on the market now. Most laptop users will for the time being buy plug-in modems. Nor are there any WiMAX-equipped cellphones available in North America. In fact Nokia just decided to stop selling the N810 WiMax mini computer it offers through Xohm.

Allen is clearly rooting for Clearwire to expand fast. “It doesn’t make a lot of sense to me for them to be unexpansive,” he said, Clearwire having secured some US$3.2 billion in investments from Intel, Google and cable operators Comcast and Time Warner Cable.

Why, he asked, would Clearwire want to “sit on their hands while their lead erodes over other technologies,” such as LTE. “I’m not seeing anything in my interaction with them that tells me they’re slowing down.” However, he acknowledged that as far as he knows the new Clearwire board hasn’t even met yet to approve this year’s spending plans.

A Clearwire spokeman confirmed the new board hasn’t met, and said expansion plans will be announced later in the year.

In its third quarter, which ended in November, DragonWave pulled in $10.7 million in revenue, the same as it did for the previous two quarters. Allen believes the fourth quarter will be about the same.

The company’s quarterly net loss narrowed to about $200,000 from $1.7 million in the second quarter, but mainly because of $2.4 gain in U.S. foreign exchange.

DragonWave has yet to post a profit. In a bid to change that, in December, right after the quarter closed Allen announced he was laying off 20 staffers (about 13 per cent of the workforce) and cutting expenses. On Friday he said the goal is “to be operating on break-even or better basis in fiscal 2010,” which starts March 1.

Like most carrier equipment makers, DragonWave is carefully watching the spending plans of its present and potential customers. Many have already signaled their spending plans for the coming year are being chopped as economies slow in many of the 40 countries it sells to. “There remain some uncertainties in other opportunities we are pursing,” Allen warned.

DragonWave also makes wireless Ethernet radios for enterprise Ethernet access, as well as tailored solutions for the education, medical and video surveillance markets. Allen described the China sale as “an enterprise application servicing the government sector.” In fact, he was surprised at the deal because DragonWave hasn’t paid much attention to the country, feeling sales and marketing efforts in other nations would show results sooner. Now he’s rethinking that.