When Ottawa’s DragonWave Inc. struck a deal in 2011 to take over Nokia Siemens Networks’s microwave transport manufacturing business and become NSN’s supplier, management predicted it could boost the Canadian company by as much as $100 million a quarter.
It didn’t turn to be nearly that much.
So on Wednesday the two companies announced they have renegotiated the deal, which DragonWave hopes will cut its operating costs by just under $4 million a quarter.
NSN will also take on additional commitments and costs so that DragonWave can continue to develop microwave products – which it has rebranded as the Harmony line and is resold by NSN — the companies said in the release.
An Italian services agreement, under which NSN’s division there provided R & D and certain other services to DragonWave since June 1, 2012, has also been terminated. That could be significant because according to a report last month from National Bank Financial, staff at NSN division have been striking periodically since the beginning of the year. That, in part, may be why DragonWave missed its fourth quarter projected revenues, National Bank Financial analyst Kris Thompson said.
Finally, the deal also specifies DragonWave paying a termination fee to NSN of about $9.2 million over the balance of fiscal year 2014.
As a result of these moves DragonWave expects that its operating costs will be reduced by just under $4million a quarter.
For its part NSN said DragonWave remains its preferred supplier of packet microwave systems for carriers.
“The new arrangements being announced today are intended to streamline our operations and customer outreach strategy to better serve Nokia Siemens Networks and its customers,” DragonWave CEO Peter Allen said in the release.
“We believe that, by 2020, mobile networks will need to be ready to deliver one gigabyte of personalized data per user per day profitably and we are committed to offering our customers the best mobile broadband solution possible including the microwave that DragonWave brings to the table,” Marc Rouanne, executive vice president, mobile broadband at Nokia Siemens Networks, said in the release.
However, the deal hasn’t stopped DragonWave from cutting staff to bring expenses into line. Recently the number of senior management positions has been cut by one-third.
Last month DragonWave changed its revenue expectations for the fourth quarter of its fiscal year, which ended Feb. 28 would be about $30 million, compared to the expected $40-$45 million range. Part of that is due to lower sales revenue from NSN.
DragonWave also missed its Q3 financial guidance as well, National Bank Financial pointed out.