DragonWave catches fire on back of 5G collaboration
Finally, a shaft of light at DragonWave, which has been hurtling through a year from hell.
Shares at the Kanata developer of high-speed wireless gear soared nearly 48 per cent Tuesday to reach $11.30 on the TSX. Even more impressive, they’ve quadrupled in the past six trading days. “I think our recent announcements have reminded our investor base that we’re still around,” said DragonWave chief executive Peter Allen.
The main catalyst for the surging share price appears to have been the revelation March 29 that DragonWave and its next-door neighbour Mitel Networks will collaborate on next-generation 5G wireless technologies.
The latter are expected to operate 50 times faster than today’s WiFi networks, allowing people to download movies in a matter of seconds.
“5G will create demands on networks,” said Allen. “That’s good news for us.”
The real promise of 5G lies in its ability to allow smartphone subscribers to access their cars, appliances and other personal electronics. Major wireless carriers such as Verizon and Bell plan to begin testing 5G services some time in 2017.
Mitel recently established a new division, led by former Mavenir CEO Pardeep Kohli, to invest in 5G technology. DragonWave is to provide its expertise in microwave technology, a low-cost substitute for fibre-optic cable.
For the moment, the Mitel-DragonWave collaboration is all about technology. As the market for 5G gear actually develops, the firms will discuss how to split revenues generated by the sale of products.
In the meantime, DragonWave will rely in part on secondary streams of revenue to avoid a further deterioration in its thin cash balance. The company reported less than $8 million (all figures U.S.) at the end of November, considered low for a high-tech firm. The loss for DragonWave’s fourth quarter ended Feb. 29 — to be reported some time in May — is expected to be around 75 cents per share, or slightly more than $2 million.
To help buttress revenues — forecast to be about $25 million in the fourth quarter — DragonWave announced Tuesday it will compete for the right to service some 400,000 microwave units already installed in networks around the world, including the product line it acquired in 2012 from Nokia.
Nokia earlier this year acquired Alcatel-Lucent, which competes directly against DragonWave and its line of microwave gear. The Nokia acquisition, along with a technical glitch reported last summer by one of DragonWave’s key customers in India, sent Allen’s company into a tailspin that required some emergency measures.
Early this year DragonWave shareholders approved a 25-toone consolidation of the company’s stock — there are about three million shares outstanding — to permit the company to continue trading on the Nasdaq stock exchange in New York, which requires firms to trade above $1 per share.
There seems little danger the firm will approach that mark anytime soon. DragonWave on Tuesday saw its shares jump $2.78 per share on Nasdaq, up 47 per cent to close at $8.70. However, DragonWave shares were down 40 cents per share in early after-market trading, and the firm’s regular 4 p.m. closing price was 82-per-cent below its value of last summer.
When share values fall this far, any bit of news — good or bad — tends to trigger sharp moves in percentage terms. This past week has all been to the good for Peter Allen and DragonWave.