Will anyone step up to buy SR Telecom?

In the wake of SR Telecom’s recent filing for court protection from its creditors and its quest to find a buyer, Canadian analysts are divided on the company’s future.

Mark Tauschek, senior research analyst at Info-Tech Research Group in London, Ont., predicts no one will want to buy the Montreal-based wireless equipment maker, and the company will eventually shut its doors for good.

“I don’t see anybody being terribly interested in this company,” Tauschek said. “I think they will just disappear.” Ronald Gruia is more optimistic. “I think they’re going to hang in there,” said Gruia, Toronto-based principal analyst for emerging communications at Frost & Sullivan.

Gruia added the market for equipment with Wireless Interoperability for Microwave Access (WiMAX) technology, which is used in SR Telecom’s Symmetry fixed wireless product line, is relatively new.

“They’re just at the cusp,” Gruia said. “If they manage to get through this tough time, they’ll be able to weather the storm and continue on. I wouldn’t write them off completely as of now.”

At press time, SR Telecom officials did not return calls seeking comment for this story. SR Telecom, which sells most of its non-line-of-sight equipment to incumbent and competitive carriers outside North America, this week asked the Quebec Superior Court for protection from creditors under the Companies’ Creditors Arrangement Act (CCA).

Earlier this week, the company said it intends to seek a buyer.

The vendor lost $49.3 million during the first nine months of 2007, compared to a loss of $84.4 million during the same period in 2006. The firm owes $46.7 on a credit facility, and an additional $36.1 million on a term loan. On Monday, the firm also announced it will cut 35 jobs from its workforce of about 400.

“They’re really trying to cut themselves to the bone and develop WiMAX solutions and maintain customer support,” Gruia said.

Earlier this year, SR Telecom sold its stake in Chilean carrier Comunicacion y Telefonia Rural (CTR), which was originally a joint operation of which SR Telecom had partial ownership. After its other partners pulled out, SR Telecom was left owning the operation, for which it received no cash. However, its sale this year relieved SR Telecom of $29 million of liabilities. Last year, 82 per cent of SR Telecom’s revenues were from Latin America, though it has sold some products in the U.S. to customers such as San Isabel Telecom in Colorado.

At its annual general meeting in September, president Serge Fortin announced the company’s priorities for 2007 and 2008, including a growth in WiMAX market share. But Roberta Fox, president of Fox Group Consulting in Mount Albert, Ont., said carriers are reducing their spending on WiMAX.

“There’s been a lot of concerns about the viability of WiMAX,” she said. “They’re a great company and I’d love them to succeed because they have good track record.” But she added the value of SR Telecom is its employees, rather than its technology, so a buyer could relocate product development teams elsewhere.

Tauschek says the WiMAX market is “getting to be very competitive,” and small companies making WiMAX gear are targets for acquisition. But he adds other fixed wireless manufacturers, such as Toronto’s Redline Communications, or Tel Aviv-based Alvarion Ltd., are more likely to be bought.

Redline has announced deals with carriers in various countries, including Tanzania, Gabon, Paraguay, Egypt and Cameroon. Yesterday, the company announced MTN Cameroon has agreed to purchase RedMax base stations for a network that will serve 12 cities in the African country. MTN expects to have service available to more than 12,000 users in the cities of Douala and Yaounde this year.

A Redline spokesperson would not speculate on the future of SR Telecom – or say whether the company was in talks with SR Telecom. Officials from Motorola and Alcatel-Lucent would neither confirm nor deny their companies are in discussions with SR Telecom.

“I think it’s a shakeout and there will be ongoing consolidation,” Tauschek said of the WiMAX equipment market. “Some of the players that are in there are going to get shaken out, and I think SR Telecom is one of them.”

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