Shares of Novatel Wireless fell to a four-year low yesterday after the high-speed modem company reported declining profits, product delays and competition from a new line of Qualcomm products.
Analysts downgraded Novatel after the San Diego company reported Tuesday that quarterly net income dropped to $25,000, or break even per share, from $8 million, or 25 cents a share, a year ago. Analysts had expected earnings of 11 cents per share.
Novatel also said that the cost of an accounting review drained $2.6 million from its quarterly income, which was more than the company had expected. The review could result in restatement of previously reported financial results, Novatel said.
Novatel shares fell $2.11, or more than 25 percent, to close at $6.29 yesterday after trading as low as $6.05. Novatel last closed below $6.36 on Jan. 2, 2004. In the previous 52 weeks, the shares traded between $7.42 and $27.20.
The company is in a transition period facing declining profit margins on mature product lines, Chief Executive Peter Leparulo told analysts in a conference call. He said shipment of new products, which had been expected in the third quarter, will be pushed back to the fourth quarter, due to delays in testing by the Federal Communications Commission and customers.
The delay in new products is expected to lead to third-quarter resusults between break-even and a 3-cent per share loss.
Analysts had expected earnings of 15 cents a share for the third quarter.
Kevin Dede, an analyst at Morgan Joseph & Co., downgraded Novatel's stock to “hold” from “buy,” blaming in part delays in key modem releases. In a research note, Dede wrote that “as hard as Novatel tried to push introduction ahead, these new products are now expected to launch” in the fourth quarter.
“We expect our initiatives to return the company to solid growth in the fourth quarter,” Leparulo said.
The executive said Novatel is feeling competition from Qualcomm's Gobi chips, which can work on either of the two competing wireless technologies to connect laptops to cell phone data networks. Laptops built with Novatel modem chips are specific to one technology or the other. The company's major U.S. customers are Sprint and Verizon.
The Associated Press contributed to this report.
Jonathan Sidener: (619) 293-1239; jonathan.sidener@uniontrib.com
