Alvarion - Buy Rating Reiterated!

All you who want to get out, by all means get out and let me benfit from the stocks ascent when they report better than expected earnings. We have seen it his above $15 on buyout speculation, now it will hit it again on its own results.


Israeli Technology and Communications

Alvarion Ltd. (ALVR: $13.13, Positive)

3Q Earnings Preview

In this note we preview ALVR's 3Q earnings. We are maintaining our numbers for 2H07 and 2008, and adding 2009 estimates to our model. We also maintain our thesis that ALVR has a defensible position in the WiMAX access market, and that the company is on track to grow into meaningful operating leverage.

HIGHLIGHTS

Maintaining estimates; adding 2009 estimates to model. We are maintaining our thesis that Alvarion will be able to meet or exceed our numbers of $59.2 mln and $0.04 for 3Q. As mentioned in previous reports, we are modeling significant leverage over the next six quarters, and expect operating margin to reach 4.6% in 2008, and 8.8% in 2009. We expect 26% Y/Y growth in 2008 and 25% Y/Y growth in 2009, based on WiMAX revenue growth of 50% and 42%, respectively, and flat non WiMAX revenue. Positive Factor Cisco's acquisition of Navini is positive for industry and a net neutral for ALVR. Last Tuesday, Cisco announced its acquisition of privately held Navini Networks for $330 mln. This acquisition was rumored in the market for sometime, appearing in Unstrung on October 15. We believe that this acquisition is a positive for the industry, reaffirming Cisco's commitment to WiMAX; we would also point out Cisco's intent to address emerging markets (meaning fixed WiMAX). We view this acquisition as neutral to Alvarion. While
ALVR has been partnering with Cisco, we would note that it has been ALVR bringing Cisco in for network components, so this does not represent the loss of a channel. Furthermore, we believe that mutual current deployments and trials will continue as planned, and that ALVR and Cisco may selectively work together in the future. Lastly, while Navini has a WiMAX product, its installed base is still deploying proprietary technology. Neutral Factor WiMAX hype may have cooled, but ALVR's near-term performance is not dependant on mobile WIMAX and/or any specific deployment. The resignation of Sprint's CEO may have cooled WiMAX hype, especially as it came on the heels of a successful and highly publicized WIMAX World. Again worth noting, ALVR is not
a part of the Sprint roll-out, and does not expect any meaningful revenue from mobile WiMAX in the next six quarters. Positive Factor
Valuation. Shares of ALVR trade at 44x our 2008 estimate of $0.30 and 22x our 2009 estimate of $0.60. PEG ratios are 0.4 and 0.2, respectively.

CONTRA CASE

The main risk to our thesis on ALVR lays in market perception and eventual uptake (not expected until 2H08 of mobile WiMAX services once those are offered.