BUY OR SELL-Will DragonWave shares take more beating?

* Bulls bank on partnerships with large wireless OEMs

* Bears see margin compression, lumpy sales

* Shares bounce back on cost-cut hopes

By Bhaswati Mukhopadhyay

BANGALORE, July 9 (BestGrowthStock) – Shares of DragonWave Inc
(DWI.TO: ) (DRWI.O: ) have been on a roller-coaster as the Canadian
telecoms equipment maker failed to draw up a definite plan to
replace its marquee customer.

With Clearwire Corp (CLWR.O: ) nearing completion of its
initial phase of 4G WiMax-based network rollout, DragonWave
faces a gaping hole in its revenue stream as it derived about
85 percent of its revenue from this key customer.

Shares of the company hit their life-time high of $14.55 in
January, but are now trading more than 60 percent down since

While some analysts are wary of DragonWave bagging any
significant orders in the near term, others believe the
company’s cost-cutting efforts will pay off to an extent.

Analyst Chris Umiastowski of TD Newcrest said he expects
Clearwire to continue its network deployment beyond its initial
phase and DragonWave to see strong orders in support of that

DragonWave, which has “attractive prospects” with
non-Clearwire customers, is seeing good traction in Eastern
Europe and in the Middle East, the analyst said.

“We believe that the company’s win with Yota in Russia is
likely driving its success in Eastern Europe,” Umiastowski said
in a note to clients.

DragonWave’s partnerships with large wireless OEMs can open
opportunities in turnkey network builds for big operators, the
analyst said, adding that DragonWave’s OEM partnership could
contribute to second-quarter sales.

“These OEM agreements could help DragonWave penetrate the
upcoming LTE (long-term evolution) deployments with the
traditional large North American wireless carriers.”

Eyal Ofir of Canaccord Genuity said, “We remain confident
that given the strategic element the 4G network represents to
Sprint Nextel Corp (S.N: ) and Clearwire’s cable partners,
Clearwire will secure the funding it requires to proceed with
its expansion toward its longer-term coverage goal.”

SELL Analyst Kris Thompson of NB Financial, who has an
“underperform” rating on the stock, said DragonWave needs to
work overtime to grow revenue until Clearwire raises funds to
expand its network towards the 270 million POP (Points Of
Presence) goal.

“We continue to expect severe margin compression, now a
quarter earlier than expected — next quarter,” Thompson said,
adding that he would stay away from this stock.

“Profitability is a key near-term concern that investors
should be aware of,” Thompson wrote in a note to clients.

Thompson, who expects DragonWave to take more significant
restructuring steps, said he would be interested in the stock
around the C$3.50 per share level supported by a strong cash

CIBC World Markets Inc’s Todd Coupland said the company
sells its products to customers that are deploying Wi-MAX
networks and due to the nature of these rollouts, sales to any
given customer can be lumpy.

“As large operators deploy packet radio, we expect
DragonWave to have lumpy results,” said Coupland, who has a
“sector performer” rating on the stock.
(Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by
Vyas Mohan)

BUY OR SELL-Will DragonWave shares take more beating?