An Ottawa maker of wireless broadband equipment for enterprises is expanding its portfolio through an acquisition it believes will help the company sell its coming WiMax-to-LTE conversion gear.
Eion Networks Inc. said that earlier this month it bought the WiMax division of Santa Clara, Calif.-based Aviat Networks Inc., including its StarMAX fixed and mobile base stations, gateways and end-user devices.
“This is a big strategic step for Eion, both from the product and customer point of view,” Kalain Kalaichelvan (pictured), chairman and CEO of privately-held Eion said in an interview.
“Their portfolio of products really compliments what we are doing because they have 4G (fourth generation wireless) products.
“The second main reason is Aviat sells to Tier 1 and 2 service providers, and we sell to a lot of enterprises … so this can be the springboard for us into launching LTE.”
Eion’s upgrade solution to LTE will be ready by next summer, he said. Over the next six to 12 months WiMax providers will want to convert and “we are already in their living room,” Kalaichelvan said.
Four years ago WiMax and LTE (Long Term Evolution) were fighting to be the next generation of wireless broadband technology, promising to offer at least wireline speeds. Fixed WiMax (also known as the IEEE’s 802.16 standard) got off the mark first and has been chosen by a number of carriers to serve small communities. At the time LTE standards were barely set. But WiMax’s mobile version (802.16e) was shunned by major carriers in favour of LTE because major equipment makers like Ericsson LM offered a clear upgrade path from the GSM technology used by most leading cellular operators.
In the U.S., WiMax’s biggest supporters, Clearwire and Sprint-Nextel Corp., have signed they will eventually switch to LTE.
That has left WiMax operators in a fix, looking for equipment makers who have to face the inevitable: Eventually upgrading to LTE.
WiMax equipment makers, meanwhile, have faced struggling sales as service providers wonder whether they should invest in the technology. But in some parts of the world – such as emerging countries with very little in the way of phone lines, WiMax makes sense. Which is why 80 per cent of Eion’s sales have gone to countries outside North America, Kalaichelvan said.In Canada it counts only a few oil and gas companies as customers.
Few wireless carriers here have chosen WiMax. One is Xplornet Communications Inc. (formerly Barrett Xplore Inc.) Another is Manitoba’s NetSet Ltd., a co-operative of seven rural Internet service providers in that province.
Aviat has commercial customers or trials in Russia, Kazakhstan, India, Thailand, Georgia, Nigeria, Tunisia, Italy and South Africa as well as the U.S.
According to a filing by Aviat [NASDAQ: AVNW] with the U.S. Securities and Exchange Commission (SEC), Eion got the business for a song. It will pay US$390,000 in six months and up to $2.8 million more depending on “specific factors related to future WiMAX business performance” of Eion.
The reason for the bargain price is simple: After a bloody fiscal 2010, in which it lost US$130 million, Aviat management started to shed non-performing units. The first to go was its NetBoss network management business, bought by current and former NetBoss executives.
In March Aviat (until last year called Harris Stratex Networks) decided to get rid of the WiMAX business because of its history of operating losses and lower than anticipated sales volume, the company said in an SEC filing. In the quarter ending April 1, the WiMax business lost US$11.4 million. In nine months the unit lost $US19 million. It got into WiMax by spending US$12 million for troubled Telisma Networks in 2009.
Rather than spend money to improve the WiMAX technology, Aviat preferred to focus resources on growing Aviat’s core microwave business.
Robert Syputa, a Seattle-based wireless broadband industry analyst at Maravdis Inc., said the sale is another indication of consolidation among WiMax equipment makers, which include Ottawa’s Redline Communications Group Inc. [TSX: RDL] Alvarion Ltd. of Tel Aviv and Airspan Networks Inc. of Boca Raton, Fla. Most have broadened their product lines to include other IP-based technologies such as LTE.
Competition from Chinese-based wireless equipment makers, such as Huawei Technologies Co., has also pushed down WiMax equipment prices, Syputa added.
He also complained WiMax manufacturers weren’t ready with compatible equipment when carriers in the U.S. were buying spectrum in the 700 MHz band to meet the increased data demands of mobile users.
All this doesn’t bother Kalaichelvan, although he agreed the future of mobile WiMax (802.16e) isn’t bright. But fixed WiMax (802.16d), where signals go from homes and businesses to a service provider’s towers, will be around “for many years to come,” he predicts.
Kalaichelvan left Nortel Networks in 2001, where he was a vice-president in charge of IP business, to co-found Eion. At first it was a software business, and it still develops embedded network software and sells services.
But with a team strong in wireless technologies the company switched paths. The purchase of Aviat’s WiMax business is the fourth acquisition in the last 10 years.
In three years he hopes to take Eion public.