Loss of customer sinks wireless firm's shares

Shares of wireless equipment maker Remec sink today after the company announces that a major customer has canceled all pending purchase orders.

2 min read
Shares of wireless equipment maker Remec sank today after the company announced that a major customer has suspended all pending purchase orders.

The San Diego-based company said in a statement released after the markets closed yesterday that SpectraPoint Wireless, a joint venture of Motorola and Cisco, suspended $19.2 million worth of orders of radio frequency electronic equipment. The cancellation, which may only be temporary, applies to all SpectraPoint suppliers.

The cancellation "is significant as far as the fact that SpectraPoint is one of Remec's more high-profile customers," said Mark Jordan, an analyst at A.G. Edwards.

"This is a performance problem with SpectraPoint products, and they've halted rollout to address this issue," said Jordan.

By market close, Remec shares fell $5.31, or 12 percent, to $38.50 on a volume of 2.3 million shares, five times more than the stock's average daily volume of about 500,000 shares.

The stock is down about 20 percent over the past two days, but is still up about 44 percent since the beginning of the year. Remec shares have traded within a range of $57.88 and $9.12 over the past 52 weeks.

CIBC World Markets analyst Dale Pfau wrote today in a research note that SpectraPoint's "system is having software-related problems not associated with Remec's hardware."

Kathy Haas, a spokeswoman for Motorola, which owns about 80 percent of SpectraPoint, said the halt was a strategic decision made to address the "time-to-market issues" of SpectraPoint's SP2200 product and the window of opportunity in the market for the wireless broadband system.

The SP2200 transmits data, acting as a "last-mile" alternative to a digital subscriber or cable line.

Rich Valera, an analyst for Needham & Co., said Remec will recover from the SpectraPoint loss, noting the company's strong book-to-bill ratio of 1.5 to 1, meaning that the company recorded $1.5 million in orders for every $1 million worth of product shipped.

Remec CFO Michael McDonald said "it's too soon to tell" if Remec will have to drum up new customers to make up for the loss of SpectraPoint. He acknowledged that finding new customers "is not going to be easy, but it's not the end of the world. We have pretty strong demand for our products."

Needham's Valera said "there's less of a short-term risk to the stock than a long-term risk because of the order backlog, but I believe the company can probably make up the business elsewhere." Valera, Jordan and Pfau left their earnings estimates for Remec unchanged.

For the first quarter ended on April 28, the company generated $57 million in revenues, compared with $43 million in the prior year period.

The company posted 5 cents per share in earnings for the quarter and a loss of 14 cents a year ago. Analysts surveyed by First Call expect Remec to make 9 cents a share next quarter compared to 3 cents the year before quarter.