UPDATE 1-DragonWave stock falls on worry over key customer

* Issues forecast for one quarter, not customary full year

* Sees $50 mln in Q1 sales vs expectations of $56-$57 mln

* Concern that demand from Clearwire slowing

* Stock falls to C$6.30 on TSX, 20-month low

By Susan Taylor

OTTAWA, May 7 (BestGrowthStock) – Shares of Canadian telecoms
equipment maker DragonWave Inc (DWI.TO: ) (DRWI.N: ) tumbled more
than 20 percent on Friday after it forecast revenue figures
that sparked worries about waning demand from its marquee
customer.

The one-time market darling, whose stock was worth more
than C$14 just four months ago, was the second-biggest loser on
a percentage basis on both the Toronto Stock Exchange and
Nasdaq on Friday.

DragonWave lost about C$65 million ($62.5 million) in
market capitalization as its stock sank to C$6.37 in Toronto
and $6.13 on Nasdaq on concern that orders from U.S. carrier
Clearwire Corp (CLWR.O: ), its biggest customer, were coming to
an end and won’t be replaced by orders from new customers.

“That’s the raging debate in the stock: Can they do it
quick enough? What does their trajectory look like?” said Avian
Securities analyst Matt Thornton.

“That’s really the name of the game, to try and quickly
ramp up the other side of the business. It’s just very
difficult when you’ve got one customer that’s so large,
relative to anything else you have in your pipeline.”

DragonWave, whose microwave radio systems move
voice and data between cell phone towers and phone companies’
networks, reported its fourth-quarter results after the market
close on Thursday.

They showed a record 87 percent of the company’s revenue
in the quarter came from Clearwire, which is expanding its U.S.
communications network to reach a target population of 120
million people by the end of 2010.

The results were in line with analysts’ estimates, but in
the report DragonWave forecast sales for just one quarter ahead
rather than the typical full year.

It estimated first-quarter sales at $50 million, which
trails the $56 million to $57 million analysts expected.
DragonWave is switching to reporting in U.S. dollars starting
in its first quarter.

“What’s giving people concern is Clearwire may be getting
ready to roll off or slow down. And so the question will be
just how does the company navigate if there is a change in pace
of activity at Clearwire?” said Pacific Crest analyst James
Faucette.

Clearwire’s contribution to DragonWave’s fourth-quarter
sales was C$55.3 million, a 21 percent increase over the third
quarter. Sales from other customers fell 15 percent to C$8.6
million.

“These customer concentration situations seldom work out
well,” said Dundee Securities analyst Tom Astle in a note. The
fourth quarter could represent a sales peak for some time, he
said.

DragonWave has won some new customers — including new
entrants to the Canadian wireless market Globalive and
Quebecor’s (QBRa.TO: ) Videotron — but analysts worry about the
pace of growth.

There has been speculation that DragonWave could supply
equipment for network expansions planned by big U.S. carriers
AT&T and Verizon, though several analysts said it looks
unlikely.

“Most of the activity that Verizon and AT&T are doing right
now to improve their network backhaul capacity is being done in
metro areas and that’s using a lot of fiber,” Faucette said.

“The question is how much and how soon might they start to
upgrade their more suburban and rural segments of their
network? And in those cases that’s where microwave could be
introduced.”

Several analysts cut their share-price targets for
Ottawa-based DragonWave on Friday. Dundee Securities chopped
its 12-month target to C$8.50 from C$14.50 and downgraded the
stock to “neutral high risk” from a “buy” rating.

National Bank Financial cut its target to C$10 from C$14
and Canaccord Adams cut its target to $11 from C$17.

Stock Market

($1=$1.04 Canadian)
(Reporting by Susan Taylor; editing by Peter Galloway)

UPDATE 1-DragonWave stock falls on worry over key customer