UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
20-F
(Mark
One)
o
|
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT
OF 1934
|
OR
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
For
the fiscal year ended December 31,
2007
|
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
For the transition period from __________
to
__________ |
OR
o
|
SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
Date of event requiring this shell company
report
_____________ |
Commission
file number 0-30628
Alvarion
Ltd.
(Exact
name of Registrant as specified in its charter)
Israel
(Jurisdiction
of incorporation or organization)
21A
HaBarzel Street, Tel Aviv 69710, Israel
(Address
of principal executive offices)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
Title
of each class
|
|
Name
of each exchange on which registered
|
Ordinary
Shares, NIS 0.01 par value per
share
|
|
NASDAQ
Global
Market
|
Securities
registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:
None
Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual
report.
As
of December 31, 2007, there were 63,049,257 Ordinary Shares, NIS 0.01 par value
per share, outstanding.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
o
Yes x No
If
this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d)
of
the Securities Exchange Act of 1934.
o Yes x No
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
x Yes o No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 in the Exchange Act. (Check
one).
Large
Accelerated Filer o
Accelerated
Filer x
Non-Accelerated
Filer o
Indicate
by check mark which basis of accounting the registrant has used to prepare
the
financial statements included in this filing:
U.S.
GAAP
x
International
Financial Reporting Standards as issued by the International Accounting
Standards
Board
o
Other
o
Indicate
by check mark which financial statement item the registrant has elected to
follow.
o Item
17 x Item
18
If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow.
o Item
17 x Item
18
If
this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
INTRODUCTION
Alvarion
Ltd. (the “Company,” “we,” “our” or “us”) concentrates resources on a single
line of business - wireless
broadband.
We
supply
top-tier carriers, Internet Service Providers (“ISPs”) and private network
operators with solutions based on the Worldwide Interoperability for Microwave
Access (“WiMAX”) standard as well as other wireless
broadband
solutions. We are a leading provider of WiMAX and non-WiMAX wireless broadband
systems having launched over 200 commercial WiMAX deployments worldwide. Our
solutions are designed to cover the full range of frequency bands with fixed,
portable and mobile applications, to enable the delivery of Personal Broadband
services, business and residential broadband access, corporate
virtual
private
network (“VPN”),
toll
quality telephony, mobile base station feeding, hotspot coverage extension,
community interconnection and public safety communications. Currently, our
business is mainly focused on solutions based on the WiMAX standard that are
used for primary wireless
broadband
access.
In addition, we continue to sell our non-WiMAX products. Most of our solutions
provide high-speed wireless “last mile” connection to the Internet for homes and
businesses in both developed and emerging markets. When we refer in this annual
report to “emerging markets”, we mean markets in newly industrialized countries
whose
economies have not yet reached first world status but have, in a macroeconomic
sense, outpaced their developing counterparts. In 2007, we shipped our first
mobile WiMAX solutions for personal broadband applications, mainly for trials.
Our
strategy is to leverage our experience and leadership in both non-standard
broadband wireless access (“BWA”) and current WiMAX markets, together with our
brand strength, broad customer base and innovative technology, in order to
play
an important role in the WiMAX-based personal broadband market as
well.
We
were
incorporated in September 1992 under the laws of the State of Israel. Since
our
inception, we have devoted substantially all of our resources to the design,
development, manufacturing and marketing of wireless products. On August 1,
2001, Floware Wireless Systems Ltd., a company incorporated under the laws
of
the State of Israel (“Floware”), merged with and into us. As a result of the
merger, we continued as the surviving company, and Floware’s separate existence
ceased. Upon the closing of the merger, we changed our name from BreezeCOM
Ltd.
to Alvarion Ltd. On April 1, 2003, we acquired most of the assets and assumed
the related liabilities of InnoWave Wireless Systems Ltd. (“InnoWave”). In
December 2004, we completed the amalgamation of interWAVE Communications
International Ltd. (“interWAVE”), and most of the interWAVE operations became
our Cellular Mobile business unit. In
November 2006, we sold our Cellular Mobile business unit (“CMU”) to LGC
Wireless, Inc. (“LGC”), a privately-held supplier of wireless networking
solutions
in
exchange for promissory notes and convertible notes of LGC.
In
September 2007, LGC converted our convertible notes into LGC shares and thus
we
became a shareholder of LGC. In November 2007, ADC Telecommunication Inc.
(“ADC”) acquired all of LGC shares in a cash transaction. For
more
information, see
"Item
5—Operating and Financial Review and Prospects—Operating Results".
This
annual report contains forward-looking statements, within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to our business,
financial condition and results of operations. Actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including all or any of the risks discussed in “Item
3—Key Information—Risk Factors” and elsewhere in this annual
report.
In
some
cases, you can identify forward-looking statements by terms such as "may",
"might", "will", "should", "could", "would", "expect", "believe", "intend",
"plan", "anticipate", "project", "estimate", "predict", "potential" or the
negative of these terms, and similar expressions intended to identify
forward-looking statements.
These
statements reflect our current views with respect to future events and are
based
on current assumptions, expectations, estimates and projections and are subject
to risks and uncertainties. Given these uncertainties, you should not place
undue reliance on these forward-looking statements. Except as required by
applicable law, including the securities laws of the United States, we do not
undertake any obligation nor intend to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
As
used
in this annual report, the terms “we,” “us,” “our,” “our Company,” and
“Alvarion” mean Alvarion Ltd. and its subsidiaries, unless otherwise indicated.
ALVARION, ALVARION & Design, WE’RE ON YOUR WAVELENGTH, BreezeCOM,
BreezeLINK, BreezeMAX, BreezeACCESS, BreezeNET, BreezeLITE, BreezePHONE,
WALKair, WALKnet, EASYBRIDGE, 4Motion, OPEN, SentieM, InnoWave Wireless Systems
(Design), INTERWAVE, INTERWAVE & Design, INTERWAVE COMMUNICATIONS,
WaveGain
and INTERWAVE THE MICROCELLULAR NETWORKS COMPANY are trademarks or registered
trademarks of Alvarion. All other trademarks and trade names appearing in this
annual report are owned by their respective holders.
TABLE
OF CONTENTS
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Page
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PART
I
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1
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ITEM
1.
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IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
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1
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ITEM
2.
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OFFER
STATISTICS AND EXPECTED TIMETABLE
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1
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ITEM
3.
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KEY
INFORMATION
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1
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A.
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SELECTED
FINANCIAL DATA
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1
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B.
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CAPITALIZATION
AND INDEBTEDNESS
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2
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C.
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REASONS
FOR THE OFFER AND USE OF PROCEEDS
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2
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D.
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RISK
FACTORS
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3
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ITEM
4.
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INFORMATION
ON THE COMPANY
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24
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A.
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HISTORY
AND DEVELOPMENT OF THE COMPANY
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24
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B.
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BUSINESS
OVERVIEW
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24
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C.
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ORGANIZATIONAL
STRUCTURE
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46
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D.
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PROPERTY,
PLANTS AND EQUIPMENT
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47
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ITEM
4A.
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UNRESOLVED
STAFF COMMENTS
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47
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ITEM
5.
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OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
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47
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|
A.
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OPERATING
RESULTS
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47
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|
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|
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|
B.
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LIQUIDITY
AND CAPITAL RESOURCES
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61
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C.
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RESEARCH
AND DEVELOPMENT, PATENTS AND LICENSES
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68
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D.
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TREND
INFORMATION
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68
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E.
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OFF-BALANCE
SHEET ARRANGEMENTS
|
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68
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F.
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TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS
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68
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ITEM
6.
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DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
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69
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|
A.
|
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DIRECTORS
AND SENIOR MANAGEMENT
|
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|
69
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|
B.
|
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|
COMPENSATION
OF DIRECTORS AND OFFICERS
|
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73
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|
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C.
|
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BOARD
PRACTICES
|
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74
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|
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|
D.
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|
EMPLOYEES
|
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81
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E.
|
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SHARE
OWNERSHIP
|
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82
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ITEM
7.
|
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MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
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85
|
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|
A.
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MAJOR
SHAREHOLDERS
|
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85
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B.
|
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RELATED
PARTY TRANSACTIONS
|
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85
|
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C.
|
|
|
INTERESTS
OF EXPERTS AND COUNSEL
|
|
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85
|
|
|
|
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|
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|
ITEM
8.
|
|
|
FINANCIAL
INFORMATION
|
|
|
86
|
|
|
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|
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A.
|
|
|
CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION
|
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86
|
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B.
|
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SIGNIFICANT
CHANGES
|
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|
87
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ITEM
9.
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THE
OFFER AND LISTING
|
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88
|
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|
|
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|
A.
|
|
|
OFFER
AND LISTING DETAILS
|
|
|
88
|
|
|
|
|
|
|
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|
B.
|
|
|
PLAN
OF DISTRIBUTION
|
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|
89
|
|
|
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C.
|
|
|
MARKETS
|
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89
|
|
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|
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|
D.
|
|
|
SELLING
SHAREHOLDERS
|
|
|
89
|
|
|
|
|
|
|
|
|
|
E.
|
|
|
DILUTION
|
|
|
89
|
|
|
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|
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|
|
|
|
F.
|
|
|
EXPENSES
OF THE ISSUE
|
|
|
89
|
|
|
|
|
|
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|
ITEM
10.
|
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ADDITIONAL
INFORMATION
|
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90
|
|
|
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|
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|
|
|
A.
|
|
|
SHARE
CAPITAL
|
|
|
90
|
|
|
|
|
|
|
|
|
|
B.
|
|
|
MEMORANDUM
AND ARTICLES OF ASSOCIATION
|
|
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90
|
|
|
|
|
|
|
|
|
|
C.
|
|
|
MATERIAL
CONTRACTS
|
|
|
92
|
|
|
|
|
|
|
|
|
|
D.
|
|
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EXCHANGE
CONTROLS
|
|
|
92
|
|
|
|
|
|
|
|
|
|
E.
|
|
|
TAXATION
|
|
|
92
|
|
|
|
|
|
|
|
|
|
F.
|
|
|
DIVIDENDS
AND PAYING AGENTS
|
|
|
102
|
|
|
|
|
|
|
|
|
|
G.
|
|
|
STATEMENT
BY EXPERTS
|
|
|
102
|
|
H.
|
|
|
DOCUMENTS
ON DISPLAY
|
|
|
102
|
|
|
|
|
|
|
|
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|
I.
|
|
|
SUBSIDIARY
INFORMATION
|
|
|
103
|
|
|
|
|
|
|
|
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|
ITEM
11.
|
|
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
|
|
103
|
|
|
|
|
|
|
|
|
|
ITEM
12.
|
|
|
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
|
|
|
103
|
|
|
|
|
|
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|
PART
II
|
|
|
|
|
|
104
|
|
|
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|
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|
ITEM
13.
|
|
|
DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
|
|
|
104
|
|
|
|
|
|
|
|
|
|
ITEM
14.
|
|
|
MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
|
|
|
104
|
|
|
|
|
|
|
|
|
|
ITEM
15.
|
|
|
CONTROLS
AND PROCEDURES
|
|
|
104
|
|
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|
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|
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|
ITEM
16A.
|
|
|
AUDIT
COMMITTEE FINANCIAL EXPERT
|
|
|
106
|
|
|
|
|
|
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|
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|
ITEM
16B.
|
|
|
CODE
OF ETHICS
|
|
|
106
|
|
|
|
|
|
|
|
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|
ITEM
16C.
|
|
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
|
|
106
|
|
|
|
|
|
|
|
|
|
ITEM
16D.
|
|
|
EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
|
|
107
|
|
|
|
|
|
|
|
|
|
ITEM
16E.
|
|
|
PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
|
|
|
107
|
|
|
|
|
|
|
|
|
|
PART
III
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
ITEM
17.
|
|
|
FINANCIAL
STATEMENTS
|
|
|
107
|
|
|
|
|
|
|
|
|
|
ITEM
18.
|
|
|
FINANCIAL
STATEMENTS
|
|
|
107
|
|
|
|
|
|
|
|
|
|
ITEM
19.
|
|
|
EXHIBITS
|
|
|
108
|
|
PART
I
ITEM
1. IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not
applicable.
ITEM
2. OFFER
STATISTICS AND EXPECTED TIMETABLE
Not
applicable.
ITEM
3. KEY
INFORMATION
A. SELECTED
FINANCIAL DATA
We
have
derived the following selected consolidated financial data presented below
as of
December 31, 2006 and 2007 and for each of the years ended December 31,
2005, 2006 and 2007 from our audited consolidated financial statements and
related notes included in this annual report. We have derived the selected
consolidated financial data as of December 31, 2003, 2004 and 2005 and for
each
of the years ended December 31, 2003 and 2004 from our audited consolidated
financial statements and related notes not included in this annual report.
The
consolidated financial data for the year ended December 31, 2003 include the
results of operations of the assets and assumed liabilities of the InnoWave
business from April 1, 2003. The consolidated financial data for the year ended
December 31, 2004 include the results of operations of the former interWAVE
Communications International business, referred to as the Cellular Mobile Unit,
from December 9, 2004. Following the sale of net assets of CMU on November
21,
2006,
the
results of the CMU activities for the
years
ended December 31, 2004, 2005, 2006 and
2007
were reclassified to one line item in the statement of operations as “Income
(loss) from discontinued operations” below the results from continuing
operations.
We
prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the United States (“U.S. GAAP”). You should
read the selected consolidated financial data together with the section of
this
annual report entitled, “Item 5—Operating and Financial Review and Prospects”
and our consolidated financial statements and related notes included elsewhere
in this annual report.
|
|
Year
Ended December 31,
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
2006(*)
|
|
2007(*)
|
|
|
|
(in
thousands except per share data)
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
127,208
|
|
$
|
200,051
|
|
$
|
176,927
|
|
$
|
181,594
|
|
$
|
236,573
|
|
Cost
of sales
|
|
|
68,595
|
|
|
101,169
|
|
|
85,817
|
|
|
80,410
|
|
|
114,099
|
|
Write-off
of excess inventory and provision for inventory purchase commitments
|
|
|
6,562
|
|
|
11,412
|
|
|
7,338
|
|
|
9,472
|
|
|
4,762
|
|
Gross
profit
|
|
|
52,051
|
|
|
87,470
|
|
|
83,772
|
|
|
91,712
|
|
|
117,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development, gross
|
|
|
27,612
|
|
|
31,231
|
|
|
32,772
|
|
|
42,042
|
|
|
54,967
|
|
Less
grants
|
|
|
3,846
|
|
|
3,897
|
|
|
3,062
|
|
|
3,235
|
|
|
3,578
|
|
Research
and development, net
|
|
|
23,766
|
|
|
27,334
|
|
|
29,710
|
|
|
38,807
|
|
|
51,389
|
|
Selling
and marketing
|
|
|
33,000
|
|
|
38,748
|
|
|
39,900
|
|
|
44,929
|
|
|
55,943
|
|
General
and administrative
|
|
|
6,417
|
|
|
9,385
|
|
|
9,602
|
|
|
13,680
|
|
|
15,426
|
|
Merger
and acquisition related
expenses
|
|
|
2,201
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization
of intangible assets
|
|
|
2,606
|
|
|
2,676
|
|
|
2,685
|
|
|
2,676
|
|
|
2,544
|
|
Total
operating costs and expenses
|
|
|
67,990
|
|
|
78,143
|
|
|
81,897
|
|
|
100,092
|
|
|
125,302
|
|
Operating
profit (loss)
|
|
|
(15,939
|
)
|
|
9,327
|
|
|
1,875
|
|
|
(8,380
|
)
|
|
(7,590
|
)
|
Other
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,265
|
|
Financial
income, net
|
|
|
4,127
|
|
|
3,821
|
|
|
2,551
|
|
|
3,796
|
|
|
6,453
|
|
Income
(loss) from continuing operations
|
|
|
(11,812
|
)
|
|
13,148
|
|
|
4,426
|
|
|
(4,584
|
)
|
|
7,128
|
|
Income
(loss) from discontinued operations, net
|
|
|
-
|
|
|
(12,297
|
)
|
|
(17,044
|
)
|
|
(36,167
|
)
|
|
5,413
|
|
Net
income (loss)
|
|
$
|
(11,812
|
)
|
$
|
851
|
|
$
|
(12,618
|
)
|
$
|
(40,751
|
)
|
$
|
12,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.23
|
)
|
$
|
0.23
|
|
$
|
0.08
|
|
$
|
(0.08
|
)
|
$
|
0.11
|
|
Discontinued
operations
|
|
|
-
|
|
|
(0.21
|
)
|
|
(0.30
|
)
|
|
(0.59
|
)
|
|
0.09
|
|
Total
|
|
$
|
(0.23
|
)
|
$
|
0.02
|
|
$
|
(0.22
|
)
|
$
|
(0.67
|
)
|
$
|
0.20
|
|
Weighted
average number of shares used in computing basic net earnings (loss)
per
share
|
|
|
52,127
|
|
|
56,549
|
|
|
58,688
|
|
|
60,841
|
|
|
62,345
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.23
|
)
|
$
|
0.20
|
|
$
|
0.07
|
|
$
|
(0.08
|
)
|
$
|
0.11
|
|
Discontinued
operations
|
|
|
-
|
|
|
(0.19
|
)
|
|
(0.27
|
)
|
|
(0.59
|
)
|
|
0.08
|
|
Total
|
|
$
|
(0.23
|
)
|
$
|
0.01
|
|
$
|
(0.20
|
)
|
$
|
(0.67
|
)
|
$
|
0.19
|
|
Weighted
average number of shares used in computing diluted net earnings (loss)
per
share
|
|
|
52,127
|
|
|
63,754
|
|
|
63,561
|
|
|
60,841
|
|
|
64,626
|
|
(*)
Includes
charges for stock-based compensation of $6.9 million and $7.4 million as a
result of the adoption of Statement of Financial Accounting Standards (“SFAS”)
123(R),
“Share-Based
Payment” (“SFAS 123(R)”) for the years ended December 31, 2006 and 2007
respectively.
|
|
As
of December 31,
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
Working
capital
|
|
$
|
90,359
|
|
$
|
53,341
|
|
$
|
101,713
|
|
$
|
97,169
|
|
$
|
109,290
|
|
Total
assets
|
|
$
|
284,957
|
|
$
|
328,535
|
|
$
|
318,002
|
|
$
|
280,063
|
|
$
|
313,143
|
|
Shareholders’
equity
|
|
$
|
220,202
|
|
$
|
232,812
|
|
$
|
224,333
|
|
$
|
195,301
|
|
$
|
220,553
|
|
Capital
Stock
|
|
$
|
376,309
|
|
$
|
388,418
|
|
$
|
391,957
|
|
$
|
403,708
|
|
$
|
415,213
|
|
B. CAPITALIZATION
AND INDEBTEDNESS
Not
applicable.
C. REASONS
FOR THE OFFER AND USE OF PROCEEDS
Not
applicable.
D. RISK
FACTORS
Our
business, financial condition and results of operations could be seriously
harmed due to any of the following risks, among others. If we do not
successfully address the risks to which we are subject, we could experience
a
material adverse effect on our business, results of operations and financial
condition, and our share price may decline. We cannot assure you that we will
successfully address any of these risks.
Risks
Related to Our Business and Our Industry
We
have
incurred losses in the past. We may incur losses in the near term, and we may
continue
to
incur
losses in the future.
In
2007,
our operating loss from continuing operations and net income was approximately
$(7.6) million and $12.5 million, respectively. In 2006, our operating loss
from
continuing operations and net loss was approximately $(8.4) million and $(40.8)
million, respectively. In 2005, our operating profit from continuing operations
and net loss was approximately $1.9 million and $(12.6) million, respectively.
We may continue to incur operating losses and incur net losses in the future.
Continuing losses could have a material adverse effect on our business,
financial condition and results of operations, and on the value and market
price
of our ordinary shares.
Adverse
conditions
in the
telecommunications industry and in the telecommunications equipment market
may
decrease
demand for our products and may harm our business, financial condition and
results of operations.
Our
systems are used by telecom carriers and service providers. Some carriers and
service providers using wireless broadband are emerging companies with unproven
business models. Adverse market conditions in the last couple of years caused
our customers and potential customers to be conservative in their spending,
and
this could continue in the future. The markets that we participate in may not
grow as we expect or at all. While our goal is to increase our sales by
expanding the number of carrier customers that we address, there can be no
assurance that we will succeed in doing so. The number of carriers and service
providers who are our potential customers is relatively small and may not grow
because of the limited number of licenses granted in each country and the
substantial comparative capital requirements involved in establishing networks.
As a result, our revenues may decline and increase our losses. Our systems
are
also used in vertical market applications (such as surveillance, monitoring
and
connectivity) by private network operators such as government, municipalities
and large enterprises. Our products are integrated in a complete solution,
which
provide an answer to specific application requirements. The demand for our
systems in such vertical market applications could be less than expected and
the
alternative technologies may strongly compete against us. As a result, our
revenues may decline and increase our losses.
New
markets we attempt to penetrate may not become substantial commercial markets.
In addition, if we do not maintain or increase the share we expect of the
wireless broadband equipment market, our business will
suffer.
The
Personal Broadband market and any other new markets we attempt to penetrate
may
not become substantial commercial markets or may not evolve in a manner that
will enable our products to achieve market acceptance. Mobile WiMAX technology
targets fourth generation ("4G"), type of services and therefore directly
competes with other technologies such as Long Term Evolution ("LTE"), and Ultra
Mobile Broadband ("UMB"). WiMAX technology may not be adopted by communication
operators as their chosen 4G technology. For example, WiMAX market acceptance
may be hampered by competing technologies or intellectual property rights (IPR)
disputes.
In
addition, in order to maintain or increase the share we expect of
the
markets we participate in, we must:
|
·
|
continue
to innovate and differentiate our technology position in designing,
developing and manufacturing broadband wireless access
products;
|
|
·
|
develop
and cultivate additional sales channels, including original equipment
manufacturer (“OEM”) agreements, regional local partners or other
strategic arrangements with leading manufacturers of access equipment
to
market our wireless broadband products to prospective customers,
such as
local exchange carriers, cellular operators, Internet and application
service providers, municipalities and local telephone companies;
|
|
·
|
effectively
establish and support relationships with customers, including local
exchange carriers, Internet and application service providers, public
fixed or mobile telephone service providers and private network operators;
and
|
|
·
|
effectively
develop and market our OPEN WiMAX strategy in our broadband mobile
solution, together with our current and potential
partners.
|
Our
efforts in these markets may not succeed.
Intense
competition in the markets for our products may have an adverse effect on our
sales and profitability.
Many
companies compete with us in the wireless broadband equipment market in which
we
sell our products. We expect that competition from large vendors as well as
new
market vendors will increase in the future, including both with respect to
products that we currently offer and products that we intend to introduce in
the
future. As the market transitions toward standardization, it increasingly
becomes more challenging for us to compete. In addition, some or all of the
systems integrators and other strategic partners to which we sell our wireless
broadband products could develop the capability to manufacture systems similar
to our wireless broadband products. We expect our competitors to continue to
improve the performance of their current products and to introduce new products
or new technologies that may supplant or provide lower cost
alternatives to our products or products with better performance. We are also
facing additional and new competition from large telecommunications equipment
vendors, such as Alcatel-Lucent, Cisco Systems (specifically after acquiring
Navini Networks), Huawei Technologies, Motorola, NEC Corporation, Nokia Siemens
Networks, Nortel Networks, Samsung and ZTE Corporation and we expect this
competition to grow, especially with respect to the mobile WiMAX-based products.
Tier One operators, such as Sprint Nextel, may prefer to purchase products
from
these large vendors. There
has
been a trend towards consolidation in the telecommunications equipment market.
This trend may continue in the future and result in larger competitors with
enhanced resources, financial and otherwise. This may intensify the competitive
nature of the markets in which we operate.
Furthermore,
this consolidation process, such as the merger of Alcatel and Lucent,
Cisco's
acquisition of Navini
and the
merger of Nokia and Siemens limits and may further reduce the potential variety
of our customers and
partners.
In
addition, as the market grows, we may face competition from aggressive
start-ups
in
different markets. We expect that we will also face competition from alternative
wireline and wireless technologies including copper wires, fiber-optic cable,
digital subscriber lines (“DSL”), cable modems, satellite, Wi-Fi and other
broadband access technologies, such as long-term
evolution (“LTE”) and
Ultra
Mobile Broadband ("UMB")
technologies.
We
expect
these
competitors
to
continue to improve their technologies and products, which may cause us to
lose
some of our customers or prevent us from penetrating into new
markets.
Some
of
our existing and potential competitors, including large competitors arising
from
the continued consolidation in the telecommunications equipment market, have
substantially greater resources, including financial, technological,
manufacturing and marketing, and distribution capabilities, and enjoy greater
market recognition than we do. Increased competition, direct and indirect,
has
resulted in, and is likely to continue to result in, reductions of average
selling prices, shorter product life cycles, reduced gross margins, longer
sales
cycles and loss of market share and, consequently, could adversely affect our
sales and profitability.
We
may
not be able to differentiate our products from those of our competitors,
successfully develop or introduce new products that are less costly, offer
better performance than those of our competitors, or offer our customers payment
or other commercial terms as favorable as those offered by our competitors.
In
addition, we may not be able to offer our products as part of integrated systems
or solutions to the same extent as our competitors. A failure to accomplish
one
or more of these objectives could materially adversely affect our sales and
profitability, harming our financial condition and results of
operations.
Existing
and potential industry standards may have an adverse affect on our
competitiveness and market position, on our relations with our customers and
on
our revenues.
We
have
developed and continue to develop our products with a view to compliance with
existing standards and anticipated future standards. We expended, and intend
to
continue to expend, substantial resources in developing products and product
features that are designed to conform to such standards. In addition, although
we developed our products with a view to compliance with existing standards
and
anticipated compliance with future standards, we may not be able to introduce
on
a timely basis products that comply with industry standards. Since the WiMAX
industry is currently at early stages, we are requested to invest significant
resources in interoperability testing ("IOT") with other significant
WiMAX
manufacturers.
The broad demand of manufacturers and operators for IOT, as well as the length
of the IOT process and its success may have a significant impact on our
relationships with our customers and on our revenues and expenses.
Certain
standards on which we base our products and technology - such as Institute
of
Electrical and Electronic Engineers (“IEEE”) 802.16d-2004 and IEEE 802.16e-2005
- may not continue to be, or will not be, broadly adopted which could
significantly limit our market opportunity and harm our business. In general,
IEEE has expressed interest in collaborating with an international consortium
to
develop open access publishing mode. In addition, our focus on anticipated
future standards, including the IEEE 802.16e-2005 certified standard, may lead
to delays in introducing products designed for current standards and may have
an
adverse affect on our competitiveness and market position , on our relations
with our customers and on our revenues.
Our
strategy of seeking to anticipate and comply with industry standards is subject
to the following additional risks, among others:
|
·
|
the
standards ultimately adopted by the industry may vary from those
anticipated by us, causing our products (which were designed to meet
anticipated standards) to fail to comply with established
standards;
|
|
·
|
even
if our products do comply with established standards, these standards
are
not mandatory and consumers may prefer to purchase products that
do not
comply with them or that comply with new or competing standards;
|
|
·
|
product
standardization may have the effect of lowering barriers to entry
in the
markets in which we seek to sell our products, by diminishing product
differentiation and causing competition to be based upon criteria
such as
the relative size and marketing skills of competitors in which we
believe
we have less of a competitive advantage than on the basis of product
differentiation;
|
|
·
|
the
market transition to product standardization could significantly
delay the
time we recognize revenue, shifting from the date of shipping of
existing
products to the date of achievement of product certification and
fulfillment of all revenue recognition criteria;
|
|
·
|
standardization
of product features may increase the number of competitive product
offerings;
|
|
·
|
our
competitors may attempt to influence the adoption of standards that
are
not compatible with our products; and
|
|
·
|
standardization
may also result in lower average selling prices.
|
These
risks, among others, may harm our sales and, consequently, our results of
operations.
Our
products under development, including our IEEE
802.16e-2005
standards- compliant WiMAX-certified products, may not be available on our
planned timetable. If customers refrain from buying our current products in
order to wait for such products, our business will suffer.
In
the
past, we experienced delays in orders for, and decreasing revenues from, both
non-WiMAX products and products based on IEEE 802.16d standards. These delays
were primarily due to the market transition to WiMAX certified products based
on
802.16e Time Division Duplex (“TDD”) systems. We may continue to suffer from the
market transition to IEEE 802.16e-2005 WiMAX certified products or to any other
new WiMAX standards as customers continue to slow or cease their purchases
of
our commercially available products in order to wait for such products. In
addition, we may also be subject to delays in development due to third party
vendors, such as chip- vendors. If such products are not available on our
planned timetable, and if our planned timetable lags behind our competitors,
our
customers may seek other providers to fulfill their wireless needs and our
revenues could decrease.
Some
of our standards-compliant WiMAX ready products may not receive the
certification that we expect, which may affect our future
business.
We
rely
on WiMAX technology. Products based on this technology may not receive
certification in the time frame we expect, or at all, and may therefore not
achieve the wide acceptance that we are seeking. Market changes could render
this technology obsolete or subject to intense competition by alternative
technologies. This may harm the sales of our standards compliant products,
and
consequently, our results of operations.
Rapid
technological change may have an adverse effect on the market acceptance for
our
products and may
adversely affect our results of operations.
The
markets for our products and the technologies utilized in the industry in which
we operate evolve rapidly. We rely on key technologies, including wireless
local
area network (“LAN”), wireless packet data, orthogonal frequency division
multiplexing (“OFDM”), orthogonal frequency division multiple access
(“OFDMA”),
time
division multiplexing, modem and radio technologies and other technologies,
which we have been selling for several years, as well as WiMAX,
multiple-input
multiple-output communications (“MIMO”),
Sub Channelization, beam forming, high power base station and
other
technologies. These technologies may be replaced with alternative technologies
or may otherwise not achieve the wide acceptance that we are seeking. In
particular, there is a substantial risk that the wireless broadband technologies
underlying our products may not achieve market acceptance for use in access
applications. As a result, our results of operations may be adversely
affected.
In
addition, market changes could render our products and technologies obsolete
or
subject them to intense competition by alternative products or technologies
or
by improvements in existing products or technologies. For example, the
wireless
broadband equipment market may stop growing as a result of the deployment of
alternative technologies that are constantly improving, such as DSL, cable
modem, fiber optic, coaxial cable, satellite systems, Wi-Fi technology, third
or
fourth generation cellular systems, or otherwise high-speed packet access
(“HSPA”) and LTE technologies.
New or
enhanced products developed by other companies may be technologically superior
to our products, may limit our target markets or may render our products
obsolete, thus adversely affecting our results of operations.
The
success of our technology depends on the following factors, among
others:
|
·
|
acceptance
of new and innovative technologies;
|
|
·
|
acceptance
of standards for wireless broadband
products;
|
|
·
|
timely
availability and maturity of technology from technology suppliers
and
chip-vendors, such as Intel;
|
|
·
|
capacity
to handle growing demands for faster transmission of increasing amounts
of
data and voice;
|
|
·
|
cost-effectiveness
and performance compared to other fixed and other broadband wireless
technologies;
|
|
·
|
reliability
and security;
|
|
·
|
Acceptance
of new WiMAX ecosystem;
|
|
·
|
suitability
for a sufficient number of geographic
regions;
|
|
·
|
the
availability of sufficient frequencies and site locations for carriers
to
deploy and install products at commercially reasonable rates;
and
|
|
·
|
safety
and environmental concerns regarding wireless broadband
transmissions.
|
We
may experience difficulties or delays in the introduction of new or enhanced
products, which could result in reduced sales, unexpected expenses or delays
in
the launch of new or enhanced products.
The
development of new or enhanced products is a complex and uncertain process.
We
are engaged in the development of very advanced technologies. We may experience
design, manufacturing, marketing and other difficulties due to delays in our
development and/or due to delays by third party vendors that could delay or
prevent our development, introduction or marketing of new products or product
enhancements and intensified competition. The difficulties could result in
reduced sales, unexpected expenses or delays in the launch of new or enhanced
products or inability to timely introduce to the market the appropriate
products, all which may adversely affect our results of operations.
Our
recent collaboration with Accton Technology Corporation to form Accton Wireless
Broadband (“AWB”) may not achieve our expectations to build our market position
in the WiMAX Consumer Electronic Devices market.
In
January 2007, we began to collaborate with AWB to develop mass market
cost-effective WiMAX consumer electronic devices. These devices are intended
to
complement our WiMAX offerings while facilitating the availability of
WiMAX-based Personal Broadband services. These efforts may not result in the
achievement of market acceptance or in the anticipation of product capabilities
in a timely fashion or at all, and may prevent us from maintaining or expanding
our position in the WiMAX market. Each of these outcomes could have a material
adverse effect on our results of operations.
We
engaged and may continue to engage in mergers and acquisitions which could
harm
our business, results of operations and financial condition, and dilute our
shareholders’ equity.
We
have
pursued, and will continue to pursue, growth opportunities through internal
development and acquisition of complementary businesses, products and
technologies. We are unable to predict whether or when any other prospective
acquisition will be completed. The process of integrating an acquired business
may be prolonged due to unforeseen difficulties and may require a
disproportionate amount of our resources and management’s attention. We cannot
assure you that we will be able to successfully identify suitable acquisition
candidates, complete acquisitions, integrate acquired businesses into our
operations, or expand into new markets. Further, once integrated, acquisitions
may not achieve comparable levels of revenues, profitability or productivity
as
our existing business or otherwise perform as expected. The occurrence of any
of
these events could harm our business, financial condition or results of
operations. Past and future acquisitions may require substantial capital
resources, which may require us to seek additional debt or equity financing.
Past and future acquisitions by us could result, without limitation, in the
following, any of which could seriously harm our results of operations or the
price of our ordinary shares:
|
·
|
issuance
of equity securities that would dilute our current shareholders’
percentages of ownership;
|
|
·
|
the
incurrence of debt and contingent
liabilities;
|
|
·
|
difficulties
in the assimilation and integration of operations, personnel,
technologies, products and information systems of the acquired
companies;
|
|
·
|
diversion
of management’s attention from other business
concerns;
|
|
·
|
risks
of entering geographic and business markets in which we have no or
only
limited prior experience;
|
|
·
|
potential
loss of key employees of acquired organizations;
and
|
|
·
|
potential
effects on our cash reserve.
|
We
have experienced in the past, and may experience in the future, quarterly and
annual fluctuations in our results of operations. This may cause volatility
in
the market price of our ordinary shares.
We
have
experienced, and may continue to experience, significant fluctuations in our
quarterly and annual results of operations. Any fluctuations may cause our
results of operations to fall below the expectations of securities analysts
and
investors. This would likely affect the market price of our ordinary
shares.
Our
quarterly and annual results of operations may vary significantly in the future
for a variety of reasons, many of which are outside of our control, including
the following:
|
·
|
the
uneven pace of spectrum licensing to carriers and service
providers;
|
|
·
|
adoption
of new standards in our industry;
|
|
·
|
the
size and timing of orders and the timing of large scale
deployments;
|
|
·
|
the
fulfillment of all revenue recognition criteria;
|
|
·
|
customer
deferral of orders in anticipation of new products, product features
or
price reductions;
|
|
·
|
the
timing of our product introductions or enhancements or those of our
competitors or of providers of complementary
products;
|
|
·
|
the
purchasing patterns of our customers and end users, as well as the
budget
cycles of customers for our
products;
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seasonality,
including the relatively low level of general business activity in
the
first and third quarters of each
year;
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disruption
in, or changes in the quality of, our sources of
supply;
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changes
in the mix of products sold by us;
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the
extensive marketing and organizational efforts that carriers are
required
to make to develop their subscriber base following the deployment
of the
network infrastructure, creating a gap between the time carriers
purchase
base stations for network infrastructure deployment and the time
they
purchase terminal stations for connection of subscribers to the
network;
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mergers
or acquisitions, by us, our competitors and exiting and potential
customers, if any;
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one-time
charges such as asset impairment and
restructuring;
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fluctuations
in the exchange rate of the New Israeli Shekel (the “NIS”) against the
dollar;
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adoption
of new financial accounting standards;
and
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general
economic conditions, including the changing economic conditions in
the
United States and worldwide.
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Our
customers ordinarily require the delivery of products promptly after their
orders are accepted. Our business historically does not have a significant
backlog of accepted orders. Consequently, revenues in any quarter depend
primarily on orders received and accepted in that quarter. The deferral of
the
placing and acceptance of any large order from one quarter to another could
materially adversely affect our results of operations for the previous quarter.
If revenues from our business in any quarter remain in the same level or decline
in comparison to any previous quarter, our results of operations could be
harmed.
In
addition, our operating expenses may increase significantly. If revenues in
any
quarter do not increase correspondingly or at a higher rate, or if we do not
reduce our expenses in a timely manner in response to lower level or declining
revenues, our results of operations for that quarter would be materially
adversely affected. Because of the variations that we have experienced in our
quarterly results of operations, we do not believe quarter-to-quarter
comparisons of our results of operations are necessarily meaningful and you
should not rely on results of operations in any particular quarter as an
indication of future performance.
Our
products have long and unpredictable sales cycles. This could adversely impact
our revenues and results of operations.
The
sales
cycle for most of our products encompasses significant technical evaluation
and
testing by each potential purchaser and a commitment of significant cash and
other resources. The sales cycle can extend for as long as one year or more
from
initial contact with a carrier to receipt of a purchase order. This time frame
may be extended due to, among other reasons, a carrier’s will to ensure that the
systems works for a long period with increased number of subscribers’ coverage
and capacity, a carrier’s need to obtain financing to purchase systems
incorporating our products, the regulatory authorization of competition in
local
services, delays in the licensing of spectrum for these services and other
regulatory hurdles.
As
a
result of the length of this sales cycle, revenues from our products may
fluctuate from quarter to quarter and fail to correspond with associated
expenses, which are largely based on anticipated revenues. In addition, the
delays inherent in the sales cycle of our products raise additional risks of
customers canceling or changing their product plans. Our revenues will be
adversely affected if a significant customer, or significant potential customer,
reduces delays or cancels orders during the sales cycle of the products or
chooses not to deploy networks incorporating our products. Any such fluctuation
in revenue or cancellation of orders may have an adverse affect on our business
and may affect the market price of our ordinary shares.
We
may fail to deliver “turn-key” solutions to our customers
We
are
experiencing an increasing demand from existing and potential customers to
provide a complete operational or “turn key” solution for their deployment needs
where we are responsible for third-party deliverables. In addition, our new
OPEN
WiMAX strategy is designed to enable multiple telecom vendors to build a
best-of-breed telecom access network in an open standard architecture. This
new
strategy enables communication service providers to choose the combination
of
vendors and partners that best fits their specific requirements in large telecom
projects. These solutions require us to integrate subcontractors’ technologies,
equipment and services. Relying on these third parties increases our
responsibilities towards these customers. If we or any of our subcontractors
fail to fully comply with the customers’ requirements, it may adversely affect
our results of operations.
Our
business is dependent upon the success of distributors who are under no
obligation to purchase our products.
A
significant portion of our revenues is derived from sales to independent
distributors. These distributors then resell the products to others, who further
resell those products to end users. Changes in the distribution and sales
channels of our products, a loss of a major distributor or their loss of a
major
end-user, or our inability to establish effective distribution and sales
channels for new products may impact our ability to sell our products and result
in a loss of revenues. We are dependent upon the acceptance of our products
by
the market through our distributors’ efforts in marketing and sales. In some
cases, arrangements with our distributors do not prevent them from selling
competitive products and those arrangements do not contain minimum sales or
marketing performance requirements. These distributors may not give a high
priority to marketing and supporting our products. Changes in the financial
condition, business or marketing strategies of these distributors could have
a
material adverse effect on our results of operations. Any of these changes
could
occur suddenly and rapidly.
We
are dependent upon the success of our direct sales
efforts.
Direct
sales accounted for a total
of
approximately 41% of our sales in 2007, 40% of our sales in 2006 and 48% of
our
sales in 2005.
Direct
sales customers are not under any obligation to purchase our products. Some
of
these customers do not have long business histories and have encountered, and
may continue to encounter,
financial difficulty, including difficulty in obtaining credit to purchase
our
products. These customers typically purchase our products and solutions on
a
project-by-project basis, so that continuity of purchases by these customers
is
not assured. We do not necessarily retain sales personnel with carrier sales
or
project sales and management expertise. We may also face difficulties locating
and retaining carrier customers who purchase directly from us. If we are unable
to effectively continue our direct sales efforts of our products, our results
of
operations could be materially adversely affected. Any such change could occur
suddenly and rapidly.
Our
business depends in part on Original Equipment Manufacturers ("OEM") and systems
integrators.
The
success of the sales of our wireless broadband products currently depends in
part on existing relationships with OEMs or other system integrators. A portion
of our systems is sold to and through telecommunications systems integrators
for
integration into their systems, rather than directly to carriers. The sale
of
our wireless broadband products depends in part on the OEMs’ and systems
integrators’ active marketing and sales efforts as well as the quality of their
integration efforts and post-sales support. Sales through the OEM and system
integrator channels exposes this business to a number of risks, each of which
could result in a reduction in the sales of our products.
We
face
the risks of termination of these relationships, or consolidation of some of
these OEMs and system integrators or financial problems they might face, as
well
as the promotion of competing products or emphasis on alternative technologies
by these OEMs and systems integrators turning them into competitors rather
than
our partners, all that may result in decline in the purchase of our products.
In
addition, our efforts to increase sales may suffer from the lack of brand
visibility resulting from OEMs’ and systems integrators’ integration of these
products into more comprehensive systems. If any of these risks materializes,
we
will need to develop alternative methods of marketing these products. Until
we
do so, sales of our wireless broadband products may decline.
If
our
days-
sales-outstanding (“DSO”) increase
and our revenues decrease, we may suffer from a cash
shortfall.
Recently
we have experienced a shortening of our DSOs. However we expect that over time,
our DSOs may increase and will range between 60 to 70 days. We may experience
an
increase in DSOs and a decline in revenues in the future, resulting in a cash
shortfall.
We
may
experience a decrease in our gross margin levels in the future, which
may
adversely affect our financial results.
We
believe that several market developments have caused, and may continue to cause,
a decline in our gross margin. Such developments include the following:
(i)
increased competition in the regions in which we currently operate; (ii) the
mix
of our products, such as an increase in the volume of sale of lower-margin
Customer Premise Equipment (“CPEs”); (iii) the entry of new, large operators
into our markets; and (iv) changes in the market demand of some of our existing
and potential products. We expect this decline in
gross
margin
to
continue over time. If our revenues do not increase and our operating expenses
remain the same or increase, the decline in gross margin will have a negative
impact on our results of operations.
Our
products are complex and may have errors or defects that are detected only
after
deployment in complex networks.
Some
of
our products are highly complex and are designed to be deployed in complex
networks. Although our products are tested during manufacturing and prior to
deployment, our customers may discover errors after the products have been
fully
deployed. If we are unable to fix errors or other problems that may be
identified in full deployment, including problems related to the site survey,
radio planning and other problems that are not necessarily related to product
functionality but to the associated services, we could experience:
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costs
associated with the remediation of any
problems;
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loss
of or delay in revenues;
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failure
to achieve market acceptance and loss of market
share;
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diversion
of deployment resources;
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diversion
of research and development resources to fix errors in the
field;
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increased
service and warranty costs;
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legal
actions or demands for compensation by our customers;
and
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increased
insurance costs.
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In
addition, our products are often integrated with other network components.
There
may be incompatibilities between these components and our products that could
significantly harm the service provider or its subscribers. Product problems
in
the field could require us to incur costs or divert resources to remedy the
problems and subject us to liability for damages caused by the problems or
delay
in research and development projects because of the diversion of resources.
These problems could also harm our reputation and competitive position in the
industry.
We
could be subject to warranty claims and product recalls, which could be very
expensive and harm our financial condition.
Products
like ours sometimes contain undetected errors. These errors can cause delays
in
product introductions or require design modifications. In addition, we are
dependent on unaffiliated suppliers for key components incorporated into our
products. Defects in systems in which our products are deployed, whether
resulting from faults in our products or products supplied by others, from
faulty installation or from any other cause, may result in customer
dissatisfaction. We are continually marketing several new products. The risk
of
errors in these new products, as in any new product, may be greater than the
risk of errors in established products. The warranties for our products permit
customers to return for repair, within a period ranging from 12 to 36 months
of
purchase, any defective products. Any failure of a system in which our products
are deployed (whether or not these products are the cause), any product recall
and any associated negative publicity could result in the loss of, or delay
in,
market acceptance of our products and harm our business, financial condition
and
results of operations. Although we attempt to limit our liability for product
defects to product replacements, we may not be successful, and customers may
sue
us or claim liability for the defective products and for related claims arising
therefrom. A successful product liability claim could result in substantial
cost
and divert management’s attention and resources, which would have a negative
impact on our financial condition and results of operations.
We
must be able to manage expenses and inventory risks associated with meeting
the
demand of our customers.
To
ensure
that we are able to meet customer demand
for our products, we place orders with our subcontractors and suppliers based
on
our estimates of future sales. If actual sales differ materially from these
estimates, our inventory levels may
be
too high, and inventory may become obsolete and/or over-stated on our balance
sheet. This result would require us to write off inventory, which could
adversely affect our results of operations. In
2005,
2006
and
2007, we
wrote
off inventory in
the
amounts of $7.3 million, $9.5 million and $4.8 million, respectively.
We
depend on a number of manufacturing subcontractors with limited manufacturing
capacity, and these manufacturers may be unable to fill our orders on a timely
basis or with the quality specifications we require. As a result, we may not
meet our customers’ demands, harming our business and results of
operations.
We
currently depend on a number of contract manufacturers with limited
manufacturing capacity to manufacture our products. The assembly of certain
of
our finished products, the manufacture of custom printed circuit boards utilized
in electronic subassemblies and related services are also performed by these
independent subcontractors. In addition, we rely on third-party “turn-key”
manufacturers to manufacture certain sub-systems for our products.
Reliance
on third-party manufacturers exposes us to significant risks, including risks
resulting from:
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potential
lack of manufacturing capacity;
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limited
control over delivery schedules;
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quality
assurance and control;
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manufacturing
yields and production costs;
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voluntary
or involuntary termination of their relationship with
us;
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difficulty
in, and timeliness of, substituting any of our contract manufacturers,
which could take as long as six months or
more;
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the
economic and political conditions in their environment;
and
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their
financial strength.
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If
the
operations of our contract manufacturers are halted, even temporarily, or if
they are unable to operate at full capacity for an extended period of time,
we
may experience business interruption, increased costs, loss of goodwill and
loss
of customers.
In
addition, we are required to place manufacturing orders well in advance of
the
time we expect to sell products, and this may result in us ordering greater
or
lesser amount of these products than required. In the event that we order the
manufacture of a greater or lesser amount of these products, then we may be
required to purchase the surplus products or to forego or delay the sale or
delivery of the products that we did not order in advance. In either case,
our
business and results of operations may be adversely affected. Any of these
risks
could result in manufacturing delays or increases in manufacturing costs and
expenses. For example, in 2005, 2006 and 2007, as a result of an over-estimation
of our sales, we recorded in our balance sheet an allowance for irrevocable
inventory purchase commitments in an aggregate amount of approximately $2.4
million, $2.6 million and $0.9 million, respectively. If we experience
manufacturing delays, we could lose orders for our products and, as a result,
lose customers. There may be an adverse affect on our profitability and
consequently, on our results of operations if we incur increased
costs.
Our
dependence on limited sources for key components of our products may lead to
disruptions in the delivery and cost of our products, harming our business
and
results of operations.
We
currently obtain key components for our products from a limited number of
suppliers, and in some instances from a single supplier. In addition, some
of
the components that we purchase from single suppliers are custom-made. We cannot
assure that we will not experience disruptions in the delivery and cost of
our
products. We do not have long-term supply contracts with most of these
suppliers. In addition, there is global demand for some electrical components
that are used in our systems and that are supplied by relatively few suppliers.
Our dependency presents the following potential risks:
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delays
in delivery or shortages of components, especially for custom-made
components or components with long delivery lead times, could interrupt
and delay manufacturing and result in cancellations of orders for
our
products;
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suppliers
could increase component prices significantly and with immediate
effect on
the manufacturing costs for our
products;
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we
may not be able to develop alternative sources for product
components;
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suppliers
could discontinue the manufacture or supply of components used in
our
products which may require us to modify our products and which may
cause
delays in product shipments, increased manufacturing costs and increased
product prices;
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we
may be required to hold more inventory for longer periods of time
than we
otherwise might in order to avoid problems from shortages or
discontinuance; and
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due
to the political situation in the Middle East, we may not be able
to
import necessary components.
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In
the
past, we experienced delays and shortages in the supply of components on more
than one occasion. We may experience such delays in the future, harming our
business and results of operations.
Regulation,
by governments or other public bodies, may increase our costs of doing business,
limit our potential markets or require changes to our products that may be
difficult and costly.
Our
business is premised on the availability of certain radio frequencies for
two-way broadband communications. Radio frequencies are subject to extensive
regulation under the laws of each country and international treaties. Each
country has different regulation and regulatory processes for wireless
communications equipment and uses of radio frequencies. In addition, there
are
regulatory bodies that act to harmonize spectrum among countries, a factor
that
may influence our products that operate in a particular frequency.
In
the
United States, our products are subject to the Federal Communications Commission
(“FCC”) rules and regulations. The 700MHz spectrum was regulated during the
beginning of 2008 by the FCC for Broadband Wireless applications; however the
spectrum may not be technology exclusive and therefore if and to the extent
it
is allocated, it may be used for technologies other than WiMAX. In other
countries, our products are subject to national or regional radio authority
rules and regulations. Current FCC regulations permit license-free operation
in
FCC-certified bands in the radio spectrum in the United States. In other
countries the situation varies as to the spectrum, if any, that may be used
without a license and as to the permitted purposes of such use. Some
of
our products operate in license-free bands, while others operate in licensed
bands. The regulatory environment in which we operate is subject to significant
change, the results and timing of which are uncertain.
In
many
countries the unavailability of radio frequencies for two-way broadband
communications has inhibited the growth of these networks. The process of
establishing new regulations for wireless broadband frequencies and allocating
these frequencies to operators is complex and lengthy. The frequency licensing
regulation process may suffer from delays that may postpone the commercial
deployment of products that operate in licensed bands in any country that
experiences this delay.
Our
current customers that commercially deploy our licensed band products have
already been granted (when required) appropriate frequency licenses for their
network operation. In some cases, the continued validity of these licenses
may
be conditional on the licensee complying with various conditions. Since WiMAX
technologies evolve and enable new applications, such as mobile services, in
countries that have already allocated spectrum, to other than WiMAX technology,
governments may delay the granting of other spectrum, for mobile WiMAX or the
usage of the spectrum for new application such as mobile WiMAX. Some countries
still lag in the allocation of broadband wireless licenses, and this situation
may continue in the allocation for spectrum for use by WiMAX mobile services.
In
addition to regulation of available frequencies, our products must conform
to a
variety of national and international regulations that require compliance with
administrative and technical requirements as a condition to the operation of
marketing or devices that emit radio frequency energy. These requirements
were established,
among other things, to avoid interference among users of radio frequencies
and
permit interconnection of equipment.
The
regulatory environment in which we sell our products subjects us to several
risks, including the following:
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Our
customers may not be able to obtain sufficient frequencies for their
planned uses of our wireless broadband
products.
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Failure
by the regulatory authorities to allocate suitable and sufficient
radio
frequencies in a timely manner could deter potential customers from
ordering our wireless broadband products. Also, licenses to use certain
frequencies and other regulations may include terms that affect the
desirability of using our products and the ability of our customers
to
grow.
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If
our products operate in the license-free bands, FCC rules and similar
rules in other countries require operators of radio frequency devices,
such as our products, to cease operation of a device if its operation
causes interference with authorized users of the spectrum and to
accept
interference caused by other users.
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If
the use of our products interferes with authorized users, or if users
of
our products experience interference from other users, market acceptance
of our products could be adversely
affected.
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Regulatory
changes, including changes in the allocation of available frequency
spectrum, may significantly impact our operations by rendering our
current
products obsolete or non-compliant, or by restricting the applications
and
markets served by our products.
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Regulatory
changes and restrictions imposed due to environmental concerns, such
as
restrictions imposed on the location of outdoor
antennas.
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We
may not be able to comply with all applicable regulations in each
of the
countries where our products are sold and we may need to modify our
products to meet local regulations.
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Spectrum
allocation may specify a particular technology, such as 3G, LTE or
WiMAX
rather than enabling the spectrum owner to determine the
technology.
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In
addition, we are subject to export control laws and regulations with respect
to
all of our products and technology. We are subject to the risk that more
stringent export control requirements could be imposed in the future on product
classes that include products exported by us.
We
may
also be subject to certain European directives like the WEEE (Waste Electrical
and Electronical Equipment) and the ROHS (Restriction of Hazardous Substances
in
Electrical and Electronic Equipment).
Our
proprietary technology is difficult to protect and unauthorized use of it by
third parties may impair our ability to compete
effectively.
Our
success and ability to compete depends and will continue to depend, to a large
extent, on maintaining our proprietary rights and the rights that we currently
license or will license in the future from third parties. We rely primarily
on a
combination of patents, trademarks, trade secrets and copyright law and on
confidentiality, non-disclosure and assignment-of-inventions agreements to
protect our proprietary technology. We have obtained several patents and have
several patent applications pending that are associated with our products.
We
also have several trademark registrations associated with our name and some
of
our products.
These
measures may not be adequate to protect our technology from third-party
infringement. Our competitors may independently develop technologies that are
substantially equivalent or superior to our technology. Third-party patent
applications filed earlier may block our patent applications or receive broader
claim coverage. In addition, any patents issued to us, if issued at all, may
not
provide us with significant commercial protection. Third parties may also
invalidate, circumvent, challenge or design around our patents or trade secrets,
and our proprietary technology may otherwise become known or similar technology
may be independently developed by competitors. Additionally, our products may
be
sold in foreign countries that provide less protection to intellectual property
than that provided under U.S. or Israeli laws. Failure to successfully protect
our intellectual property from infringement may damage our ability to compete
effectively and harm our results of operations.
We
could become subject to litigation regarding intellectual property rights,
which
could seriously harm our business.
From
time
to time, the Company receives letters alleging it has infringed upon
a
patent, trademark or other proprietary right. As the Broadband Wireless Access
market transitions toward standardization, we are more exposed to intellectual
property litigation by third parties who claim to hold intellectual property
rights related to such standards. In addition, based on the size and
sophistication of our competitors and the history of rapid technological change
in our industry, we anticipate that several competitors may have intellectual
property rights that could relate to our products. Therefore, we may need to
litigate to defend against claims of infringement or to determine the validity
or scope of the proprietary rights of others. Similarly, we may need to litigate
to enforce or uphold the validity of our patent, trademarks and other
intellectual property rights. Other actions may involve ownership disputes
over
our intellectual property or the misappropriation of our trade secrets or
proprietary technology. As a result of these actions, we may have to seek
licenses to a third-party’s intellectual property rights, which may not be able
to be successfully integrated into our products. These licenses may not be
available to us on reasonable terms or at all. In addition, if we decide to
litigate these claims, the litigation could be expensive and time consuming
and
could result in court orders preventing us from selling our then-current
products or from operating our business. Any infringement claim, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources and harm our business, financial condition and results
of
operations. We have no assurance that any such allegation will not have a
material adverse effect on our business, financial condition or results of
operations.
If
we are unable to maintain licenses to use certain technologies, we may not
be
able to develop and sell our products.
We
license certain technologies from others for use in connection with some of
our
technologies. The loss of these licenses could impair our ability to develop
and
market our products. If we are unable to obtain or maintain the licenses that
we
need, we may be unable to develop and market our products or processes, or
we
may need to obtain substitute technologies of lower quality or performance
characteristics or at greater cost. We cannot assure you that we can maintain
these licenses or obtain additional licenses, if we need them in the future,
on
commercially reasonable terms or at all. Also, some of our products utilize
open
source technologies. These technologies are licensed to us on varying
license structures. This license and others like it pose a potential risk
to products should they be inappropriately used.
Our
failure to manage growth effectively, both through our core products and through
acquisitions, could impair our business, financial condition and results of
operations.
Our
acquisitions in the past have significantly strained our management, operational
and financial resources. Any future growth, including through mergers and
acquisitions, may increase the strain on our management, operational and
financial resources. If we do not succeed in managing future growth effectively,
we may not be able to meet the demand, if any, for our products and we may
lose
sales or customers, harming our business, financial condition and results of
operations
We
depend on key personnel.
Our
future success depends, in part, on the continued service of key personnel.
We
have experienced changes in several senior management personnel positions.
We
believe we were able to retain qualified replacements for such positions.
However, there is no assurance that the new senior management personnel will
provide the same or a better level of service to us. In addition, if one or
more
of our key technical, sales or senior management personnel terminates his or
her
employment and we are unable to retain a qualified replacement, our business
and
results of operations could be harmed.
Our
ability to achieve our strategic, operational and financial goals depends on
our
ability to hire, train and retain qualified employees.
Our
success depends in large part on the continued contributions of our managerial,
technical, and sales and marketing personnel. Substantially
all of our employees are not obligated to remain employed by us for any specific
period.
The
process of hiring, training and successfully integrating qualified personnel
into our operations is a lengthy and expensive one. The market for the qualified
personnel we require is very competitive. Our failure to hire and retain
qualified employees could cause our revenues to decline and impair our ability
to achieve our strategic, operational and financial goals.
We
may be classified as a passive foreign investment company.
As
a
result of the combination of our substantial holdings of cash, cash equivalents
and securities and the decline in the market price of our ordinary shares from
its historical highs, there is a risk that we could be classified as a passive
foreign investment company (“PFIC”) for United States federal income tax
purposes. Based upon our market capitalization during 2004, 2005, 2006 and
2007
and each year prior to 2001, we do not believe that we were a PFIC for any
such
year and, based upon our valuation of our assets as of the end of each quarter
of 2002 and 2003 and an independent valuation of our assets as of the end of
each quarter of 2001, we do not believe that we were a PFIC for 2001, 2002
or
2003 despite the relatively low market price of our ordinary shares during
some
of those years. We cannot assure you, however, that the United States Internal
Revenue Service (the “IRS”) or the courts would agree with our conclusion if
they were to consider our situation. There is no assurance that we will not
become a PFIC in 2008 or in subsequent years. If we were classified as a PFIC,
U.S. taxpayers that own our ordinary shares at any time during a taxable year
for which we were a PFIC would be subject to additional taxes upon certain
distributions by us or upon gains recognized after a sale or disposition of
our
ordinary shares unless they appropriately elect to treat us as a “qualified
electing fund” or to make a “mark to market election” under the U.S. Internal
Revenue Code. This could also adversely affect the market price of our ordinary
shares. For more information, see “Taxation—United States Federal Income Tax
Considerations with Respect to the Acquisition, Ownership and Disposition of
our
Ordinary Shares—Passive Foreign Investment Company Status".
We
are exposed to additional costs and risks associated with complying with
increasing and new regulation of corporate governance and disclosure
standards.
As
a
public company, we spend an increased amount of management time and resources
to
comply with changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley Act of 2002
(the
“Sarbanes Oxley Act”), Securities and Exchange Commission (the “SEC”)
regulations and the National Association of Securities Dealers Automated
Quotations (“NASDAQ”) Global Market rules. In connection with our compliance
with Section 404 and the other applicable provisions of the Sarbanes-Oxley
Act
of 2002, our management and other personnel devote a substantial amount of
time,
and may need to hire additional accounting and financial staff, to assure that
we comply with these requirements. Compliance may also make some of our
activities more time-consuming and costly. The additional management attention
and costs relating to compliance with the Sarbanes-Oxley Act could materially
and adversely affect our growth and financial results.
The
trading price of our ordinary shares is subject to
volatility.
The
trading price of our ordinary shares has experienced significant volatility
in
the past and may continue to do so in the future. Since our initial public
offering in March 2000, the sales prices of our ordinary shares on the
NASDAQ Global Market have ranged from a high of $53.12 to a low of $1.55. On
December 31, 2007 and March 11, 2008, the closing sale price of our ordinary
shares on the NASDAQ Global Market was $9.50 and $6.25. We may continue to
experience significant volatility in the future, based on the following factors,
among others:
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actual
or anticipated fluctuations in our sales and results of
operations;
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variations
between our actual or anticipated results of operations and the published
expectations of analysts;
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general
conditions in the wireless broadband products industry and general
conditions in the telecommunications equipment
industry;
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announcements
by us or our competitors of significant technical innovations,
acquisitions, strategic partnerships, joint ventures and capital
commitments;
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introduction
of technologies or product enhancements or new industry substitute
standards that reduce the need for our
products;
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general
economic and political conditions, particularly in the United States
and
in South America on our operations and results;
and
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departures
of key personnel.
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We
may be named defendants in securities class action lawsuits, or in other time-
consuming and expensive litigation, that requires extensive management attention
and resources and can be expensive, lengthy and disruptive.
We
were a
defendant in a securities class action litigation that was recently dismissed
as
described in "Item 8—Financial Information—Legal Proceedings". We may be named
in the future as a defendant in other securities class action lawsuits or in
other time consuming and expensive litigation. Legal proceedings can be
expensive, lengthy and disruptive to normal business operations, and can require
extensive management attention and resources, regardless of their merit.
Moreover, we cannot predict the results of legal proceedings, and an unfavorable
resolution of a lawsuit or proceeding could materially adversely affect our
business, results of operations and financial condition.
Operating
in international markets exposes us to risks, which could cause our sales to
decline and our operations to suffer and
which
could expose us to
various legal, business, political and economic risks.
While
we
are headquartered in Israel, approximately
99% of
our sales in
recent
years were generated elsewhere around the world. Our
products are marketed internationally and we are, therefore, subject to certain
risks associated with international sales, including, but not limited to the
following:
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trade
restrictions, tariffs, and technology import and export license
requirements, which may restrict our ability to export our products
or
make them less price-competitive;
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adverse
tax consequences;
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greater
difficulty in safeguarding intellectual property;
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difficulties
in managing our overseas subsidiaries and staffing multiple offices
and
multiple research and development centers, and the increased travel,
infrastructure and legal compliance costs associated with multiple
international locations;
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difficulties
in enforcing contracts and implementing our accounts receivable function,
which introduces revenue recognition, translation, proximity and
cultural
challenges;
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political
and economic instability, particularly in markets such as Africa
and Latin
America and other emerging markets;
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reduced
protection for intellectual property rights in some countries where
we may
seek to expand our sales in the
future;
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laws
and business practices favoring local
companies;
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differing
labor standards;
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costs
of localizing our products for foreign countries and the lack of
acceptance of localized products in foreign countries;
and
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fluctuations
in currency exchange rates and the implications on our financial
statements.
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We
may
encounter significant difficulties with the sale of our products in
international markets as a result of one or more of these factors. As
we
expand our business globally, our success will depend, in large part, on our
ability to anticipate and effectively manage these risks. Our failure to manage
any of these risks successfully could harm our international operations and
reduce our international sales, adversely affecting our business, operating
results and financial condition.
Downturns
in general economic conditions could adversely affect our revenues, operating
results and financial condition.
Periods
of economic slowdown or recession in the United States or other relevant regions
or countries, such as the current global slowdown, or the public perception
that
these periods of economic slowdown or recession may occur, may reduce corporate
and consumer spending and decrease the demand for our products. Furthermore,
periods of economic slowdown or recession adversely affect the financial health
of our subcontractors, partners, distributors and resellers. If
general economic conditions fail to improve, or if they deteriorate,
our
revenues, operating results and financial condition could be
adversely affected.
A
continuing decline in interest rates and the recent capital market developments
will reduce our interest-income, may decrease the value of assets and adversely
affect our profitability.
Our
investment portfolio consists of held-to-maturity marketable securities. Our
investments are exposed to market risk due to fluctuation in interest rates,
which may affect our interest income.
Additionally,
the performance of the capital markets affects the values of funds that are
held
in marketable securities. These assets are subject to market fluctuations and
will yield uncertain returns, which may fall below our projected return rates
and will affect the fair market value of our investment portfolio. Due to recent
credit crises and other market developments, including a series of rating agency
downgrades the fair value of these marketable securities may decline which
may
adversely affect our profitability.
There
may be health and safety risks relating to wireless
products.
In
recent
years, there has been publicity regarding the potentially negative direct and
indirect health and safety effects of electromagnetic emissions from cellular
telephones and other wireless equipment sources, including allegations that
these emissions may cause cancer. Our wireless communications products emit
electromagnetic radiation. Health and safety issues related to our products
may
arise that could lead to litigation or other actions against us or to additional
regulation of our products. We may be required to modify our technology and
may
not be able to do so. We may also be required to pay damages that may reduce
our
profitability and adversely affect our financial condition. Even if these
concerns prove to be baseless, the resulting negative publicity could affect
our
ability to market these products and, in turn, could harm our business and
results of operations.
Terrorist
attacks, or the threat of such attacks, may negatively impact the global economy
which may materially adversely affect our business, financial condition and
results of operation and may cause our share price to
decline.
The
financial, political, economic and other uncertainties following terrorist
attacks throughout the world have led to a worsening of the global economy.
As a
result, many of our customers and potential customers have become much more
cautious in setting their capital expenditure budgets, thereby restricting
their
telecommunications procurement. Uncertainties related to the threat of terrorism
have had a negative effect on global economy, causing businesses to continue
slowing spending on telecommunications products and services and further
lengthen already long sales cycles. Any escalation of these threats or similar
future events may disrupt our operations or those of our customers, distributors
and suppliers, which could adversely affect our business, financial condition
and results of operations.
Risks
Relating to Our Location in Israel
Conducting
business in Israel entails special risks.
We
are
incorporated under Israeli law and our principal offices and the majority of
our
manufacturing and research and development facilities are located in the State
of Israel. Political, economic and military conditions in Israel directly affect
our operations. We could be harmed by any major hostilities involving Israel,
the interruption or curtailment of trade between Israel and its trading partners
or a significant downturn in the economic or financial condition of Israel.
In
the event of war, we and our Israeli subcontractors and suppliers may cease
operations which may cause delays in the development, manufacturing or shipment
of our products. Additionally, several countries still restrict business with
Israel and with Israeli companies. Since
October 2000, terrorist violence in Israel has increased significantly.
Recently, there was an escalation in violence among Israel, Hamas, the
Palestinian Authority and other groups, as well as extensive hostilities along
Israel's northern border with Lebanon in the summer of 2006, and extensive
hostilities along Israel's border with the Gaza Strip since June 2007 when
the
Hamas effectively took control of the Gaza Strip.
Further
escalation has occurred during 2008.
Furthermore,
there are a number of countries, primarily in the Middle East, as well as
Malaysia and Indonesia, that restrict business with Israel or Israeli companies,
and we are precluded from marketing our products to these countries.
We
could
be adversely affected by the continuation or deterioration of Israel’s conflict
with the Palestinians or from restrictive laws or policies directed towards
Israel or Israeli businesses.
Our
results of operations may be negatively affected by the obligation of our
personnel to perform military service.
Many
of
our officers and employees in Israel are obligated to perform annual military
reserve duty until they reach age 45 and, in the event of a military conflict,
could be called to active duty. Our operations could be disrupted by the absence
of a significant number of our employees related to military service or the
absence for extended periods of military service of one or more of our key
employees. A disruption could materially adversely affect our business,
operating results and financial condition.
We
currently benefit from government programs and tax benefits that may be
discontinued or reduced.
We
have
received grants from the Government of Israel through the Office of the Chief
Scientist of the Ministry of Industry, Trade and Labor (“OCS”) for the financing
of a portion of our research and development expenditures in Israel, pursuant
to
the provisions of The Encouragement of Industrial Research and Development
Law,
1984, referred to as the “Research and Development Law.” Pursuant
to our current arrangement with the OCS, the OCS will finance up to 20% of
our
research and development expenses by reimbursing us for up to 50% of the
approved
expenses
related to our generic research and development projects. In addition, we obtain
other grants from the OCS to partially fund certain other research and
development projects. These programs currently restrict our ability to
manufacture particular products or transfer particular technology outside of
Israel. The Research and Development Law and related regulations permit the
OCS
to approve the transfer of manufacturing rights outside Israel subject to an
approval of the research committee and in exchange for payment of higher
royalties, for royalty—bearing
programs.
Under the programs we need to comply with certain conditions. If we fail to
comply with these conditions, the benefits received could be canceled and we
could be required to refund any payments previously received under these
programs or pay additional amounts with respect to the grants received under
these programs. The Government of Israel has reduced the benefits available
under these programs in recent years, and these programs may be discontinued
or
curtailed in the future. If the Government of Israel discontinues or modifies
these programs and potential tax benefits, our business, financial condition
and
results of operations could be materially adversely affected.
In
addition, we have been granted “Approved Enterprise” status under the Law for
the Encouragement of Capital Investments, 1959 (the “Investment Law”) for our
production facilities in Israel. Such status enables us to obtain certain tax
relief for a definitive period upon compliance with the Investment Law
regulations. On April 1, 2005, an amendment to the Investment Law came into
effect which significantly changed the provisions of the Investment Law.
The
amendment revised the criteria for investments qualified to receive tax
benefits. An eligible investment program under the amendment will qualify for
benefits as a “Privileged Enterprise” (rather than the previous terminology of
Approved Enterprise). Among
other things, the amendment provides tax benefits to both local and foreign
investors and simplifies the approval process. However, the amendment provides
that terms and benefits included in any certificate of approval granted prior
to
December 31, 2004 will remain subject to the provisions of the law as they
were
on the date of such approval. We
believe that we are currently in compliance with these requirements. However,
if
we fail
to comply with these conditions in the future, the tax benefits received could
be canceled and we could be required to pay increased taxes in the
future.
We
currently contemplate that a portion of our products will be manufactured
outside of Israel. This could materially reduce the tax benefits to which we
would otherwise be entitled. We cannot assure you that the Israeli tax
authorities will not adversely modify the tax benefits that we could have
enjoyed prior to these events.
We
are adversely affected by the devaluation of the dollar against the New Israeli
Shekel and could be adversely affected by the rate of inflation in
Israel.
Substantially
all of our revenues are generated in U.S. dollars. A significant portion of
our
expenses, primarily salaries,
building leases and related personnel expenses
is
incurred in NIS. We
anticipate that a significant portion of our expenses will continue to be
denominated in Israeli shekels.
As
a
result, inflation in Israel and/or the devaluation of the U.S. dollar in
relation to the NIS has and may continue to have the effect of increasing the
cost in dollars of these expenses; hence, our dollar-measured results of
operations are and may continue to be adversely affected. In order to manage
the
risks imposed by foreign currency exchange rate fluctuations, from time to
time,
we enter into currency forward contracts and put and call options to hedge
some
of our foreign currency exposure. We can provide no assurance that our hedging
arrangements will be effective. In addition, if we wish to maintain the
dollar-denominated value of our products in non-U.S. markets, devaluation in
the
local currencies of our customers relative to the U.S. dollar may cause our
customers to cancel or decrease orders or default on payment.
Because
exchange rates between the NIS and the dollar fluctuate continuously, exchange
rate fluctuations have an impact on our profitability and period-to-period
comparisons of our results of operations. In 2007, the value of the dollar
decreased in relation to the NIS by (9.0%), and the inflation rate in Israel
was
3.4% and as such affected our results of operations in 2007. If this trend
continues, it will continue to adversely affect our result of operations.
Provisions
of Israeli law and our Articles of Association may delay, prevent or make
difficult a merger or an acquisition of us, which could prevent a change of
control and therefore depress the market price of our ordinary
shares.
Our
Articles of Association contain certain provisions that may delay or prevent
a
change of control, including a classified board of directors. In
addition, Israeli corporate law regulates acquisitions of shares through tender
offers and mergers, requires special approvals for transactions involving
directors, officers or significant shareholders, and regulates other matters
that may be relevant to these types of transactions. These
provisions of Israeli law could have the effect of delaying or preventing a
change in control and may make it more difficult for a third party to acquire
us, even if doing so would be beneficial to our shareholders, and may limit
the
price that investors may be willing to pay in the future for our ordinary
shares. Furthermore,
Israeli tax considerations may make potential acquisition transactions
unappealing to us or to some of our shareholders. For example, Israeli tax
law
may subject a shareholder who exchanges his or her ordinary shares for shares
in
a foreign corporation to taxation before disposition of the investment in the
foreign corporation.
It
may be
difficult to effect service of process and enforce U.S. judgments against our
directors and officers in Israel or
assert
U.S. securities laws claims in Israel.
We
are
incorporated in Israel. Our executive officers and some of the directors are
not
residents of the United States, and a substantial portion of our assets and
the
assets of these persons are located outside the United States.
Therefore, it may be difficult to obtain a judgment in the United Stated or
collect or get an Israeli court to enforce a judgment obtained in the United
States against us or any of those persons. Furthermore, it may be difficult
to
assert U.S. securities law claims in original actions instituted in Israel.
ITEM
4. INFORMATION
ON THE COMPANY
A. HISTORY
AND DEVELOPMENT OF THE COMPANY
We
were
incorporated in September 1992 under the laws of the State of Israel. Since
our
inception, we have devoted substantially all of our resources to the design,
development, manufacturing and marketing of wireless products.
On
August 1, 2001, Floware merged with and into us. As a result of the merger,
we continued as the surviving company and Floware’s separate existence ceased.
Upon the closing of the merger, we changed our name from BreezeCOM Ltd. to
Alvarion Ltd. On April 1, 2003, we completed an acquisition of most of the
assets and the assumption of related liabilities of InnoWave Wireless Systems
Ltd. In December 2004, we completed the amalgamation of interWAVE Communications
International Ltd., and the interWAVE operations became our Cellular Mobile
business unit (“CMU”). In November 2006, we completed the sale of our CMU to LGC
Wireless, Inc. (“LGC”), a privately-held supplier of wireless networking
solutions in exchange for promissory and convertible notes of LGC. In September
2007, LGC converted our convertible notes into LGC shares and thus we became
a
shareholder of LGC. In November 2007, ADC Telecommunication Inc. (“ADC”)
acquired LGC and we sold our LGC shares to ADC for approximately $7.3 million.
See “Item 5—Operating and Financial Review and Prospects—Operating
Results.”
Our
principal executive offices are located at 21A HaBarzel Street, Tel Aviv 69710,
Israel, and our telephone number is 972-3-645-6262. In 1995, we established
a
wholly-owned subsidiary in the United States, Alvarion, Inc., a Delaware
corporation. Alvarion, Inc. is located at 2495 Leghorn Street, Mountain View,
CA, 94043, and its telephone number is 650-314-2500. Alvarion, Inc. serves
as
our agent for service of process.
We
also
have several wholly owned subsidiaries worldwide that handle local support,
promotion, sales and developing activities. For a discussion of our capital
expenditures and divestitures, see “Item 5—Operating and Financial Review and
Prospects—Liquidity and Capital Resources.”
B. BUSINESS
OVERVIEW
General
We
concentrate our resources on a single line of business - wireless broadband.
As
a wireless broadband pioneer, we have been driving and delivering innovations
for more than 10 years, from developing core technology to creating and
promoting industry standards. Leveraging our key roles in the IEEE and HiperMAN
standards committees and having experience in the deployment of OFDM-based
systems, we have been in the forefront of the WiMAX Forum™ in its focus on
increasing the widespread adoption of standards-based products in the wireless
broadband market and leading the entire industry to mobile WiMAX solutions.
The
WiMAX standard is the outcome of the standardization work done by the WiMAX
Forum™, widely based on the IEEE 802.16 standard working group.
Our
primary business is to provide solutions based on the WiMAX standard and other
broadband wireless technologies for three different market segments:
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Primary
Broadband:
Primary Broadband services provide subscribers with home and business
service connectivity to high-speed broadband networks for accessing
Internet, Intranet, virtual private network (“VPN”) and Voice over
Internet Protocol (“VoIP”) services. Solutions for Primary
Broadband
services provide high-speed wireless “last mile” connectivity to the
Internet for homes and businesses in both developed and emerging
markets.
In the Primary Broadband market we currently continue to sell our
non-WiMAX products in addition to our WiMAX standard products, which
are
growing in sales.
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Personal
Broadband:
Personal Broadband services enable subscribers to take their broadband
connection with them anywhere and extend their mobile services to
broadband speeds above 1 megabit per second (“Mbps”). We expect that
Personal Broadband services based on WiMAX technology will be gradually
introduced to the market by operators during the second half of 2008.
Personal Broadband exists at the intersection of the fixed, mobile
and
multimedia broadband worlds, offering subscribers a unique combination
of
high-speed broadband and mobile services that are available anywhere.
Personal Broadband is always-on, high-speed and all-IP-based, providing
direct access to the mobile Internet and creating a dynamic market
for
various services and applications. Solutions for Personal Broadband
services are entirely based on the WiMAX standard and provide anytime,
anywhere broadband services access to individuals on personalized
devices,
such as notebook personal computers, personal digital assistants
(“PDAs”)
and smart handsets (which are hand-held devices providing multiple
services such as telephony, data and digital services based on information
technology ). Our solutions enable communication operators to offer
broadband services of more than 1Mbps to their subscribers while
connecting a number of consumer electronic devices, such as smart
handsets, PDAs, PC's, cameras, media players and more to a radio
access
network. The Personal Broadband market realizes the broad vision
of mobile
broadband service consumption that changes consumers’ lifestyle and
increases productivity and entertainment. Personal Broadband networks
are
converging several distinct services, such as mobile telephony,
multi-media services and broadband data access that are provided
with
different access infrastructure into a single, all-IP network in
a unified
user device and/or in special purpose devices (such as consumer electronic
devices).
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Broadband
wireless applications for vertical markets:
Broadband wireless applications for vertical markets provide owners
and
operators of public networks, private networks, utility companies,
municipalities and government institutions with broadband connectivity
and applications that fulfill each organization's own communication
needs
rather than offering to subscribers' communication services like
the two
services above (Primary and Personal Broadband). Examples of such
applications include government and municipal offices connectivity,
security and surveillance services, campus-to-campus broadband
connectivity, oil & gas and mining company applications, and many
other machine-to-machine automated applications that require high-speed
wireless access. In this market, we sell both WiMAX and non-WiMAX
solutions, primarily in the license-exempt frequency
bands.
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With
over
200 commercial WiMAX deployments worldwide we
believe that we are the worldwide leader in providing WiMAX and wireless
broadband access solutions. We supply top-tier carriers, ISPs, new
communications service providers known as “Innovative Challengers,” and private
network operators with solutions based on the WiMAX standard, as well as other
wireless broadband solutions.
Our
strategy is to leverage our business leadership, experience, market presence,
leading brand in our industry, innovative technologies and broad customer base
in Fixed and Mobile WiMAX technologies, as well as in other broadband wireless
technologies, in order to grow our Company in each of the three markets
discussed above: (i) the Primary
Broadband
market;
(ii) the Personal Broadband market, based on mobile WiMAX standard and
technologies; and (iii) the vertical markets.
Our
products cover the full range of frequency bands, targeting fixed, nomadic
and
mobile applications, including business and residential broadband access,
corporate VPNs, toll quality telephony, mobile base station feeding, hotspot
coverage extension, community interconnection, public safety communications
and,
in the future, Personal Broadband services.
INDUSTRY
DYNAMICS
Our
Existing Market: WiMAX and Wireless Broadband
for Primary Broadband Access Services
The
Early Demand for Wireless Broadband
In
the
late nineties, both consumers and businesses began to demand broadband - also
known as high-speed Internet data services - thus accelerating the establishment
of DSL
and
cable-based broadband
networks
(wired broadband infrastructure). These DSL and cable-based broadband networks
involved high investment costs, so the access network infrastructure was not
established everywhere the demand for broadband existed. Wireless broadband
networks stepped in to meet this unserved need for broadband services, and
meeting this unserved need has been the primary application of wireless
broadband networks. The market for wireless broadband networks exists primarily
in the rural and suburban areas in developed countries and in more developed
areas in developing countries. By bridging the “digital divide” or providing
both broadband and basic telephony services in areas where telecommunications
infrastructure is poor or does not exist, wireless broadband has grown to
comprise more than 5% of the world’s broadband networks.
The
Evolution of Wireless Broadband
The
wireless broadband market has grown over the last decade due to the acceptance
of wireless equipment as a high performance, cost-efficient alternative to
wireline infrastructure for broadband connectivity.
In
developed countries, government financial support encourages operators to
complete broadband coverage in rural and suburban areas with low-density
populations, where the business model for wired infrastructure is less
attractive. In developing countries, government financial support is provided
to
encourage operators to offer basic telephony services and Internet access based
on wireless broadband infrastructure in order to meet the demand, mainly in
urban and suburban areas.
The
worldwide success of broadband connectivity and services creates demand for
additional broadband networks mainly in regions where broadband was not widely
available. The accelerated proliferation of broadband services and networks
around the world as well as commoditization of broadband devices and services
has generated more demand for broadband in developing regions, often referred
to
as the world’s emerging markets. In these regions, wireline infrastructure is
generally very poor and often non-existent, resulting in an accelerated
widespread adoption of WiMAX networks.
Government
Deregulation Creates Demand
Global
telecom deregulation is opening up the telecommunications/Internet access
industries to competition by new players. Unlike the built-in delivery systems
of wireline infrastructure, wireless technology requires the use of frequencies
contained within a given spectrum to transfer voice, multimedia and other data
services. Usually, governments allocate a specific range of that spectrum,
either licensed or license-exempt (“unlicensed”) bands, to incumbent and
Innovative Challengers, alternative carriers, as well as to cellular operators,
ISPs and other service providers, enabling such carriers and operators to launch
a variety of broadband initiatives based exclusively on wireless networking
solutions. During 2007, additional licensed and unlicensed spectrums were
allocated in many regions around the world. Increased availability of licensed
and unlicensed spectrums enables operators to address increasing demand for
wireless broadband.
Additional
Factors in the Widespread Adoption of Wireless
Broadband
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Over
the last few years, wireless broadband networks have increasingly
grown in
popularity, due in part to the inability of wired infrastructure
to meet demand, but also because of the following
factors:
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competition
among various types of telecommunications players to offer multiple
services using a single network;
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growing
trend of public access providers to build infrastructures owned by
municipalities;
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rapid
progression of standardization by international bodies, such as the
WiMAX
Forum™, combined with the wide adoption of these standards by equipment
vendors and carriers;
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attractiveness
of the business model offered to operators that use high performance
standardized and interoperable
products;
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convergence
of fixed and mobile services; and
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increasing
availability of WiMAX ecosystem products, leading to reduction in
the
capital expenditures (CAPEX) and operating expenses (OPEX) of network
deployment and the promotion of WiMAX operators’ competitiveness with
traditional wireline broadband service providers, such as DSL and
cable.
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WiMAX
Technology, Applications and Industry Advantages
WiMAX
is
a technology based on the IEEE 802.16 air interface standard and the ETSI
HiperMAN wireless metropolitan area network (“MAN”) standard. WiMAX is the
worldwide standard for wireless broadband access and personal mobile broadband
applications. Solutions based on WiMAX technology enable fixed-line, cable,
and
mobile operators and new challengers to compete with each other in the
anticipated market for higher Average Revenue Per User (“ARPU”) services. WiMAX
technology has the capacity to deliver sufficient bandwidth to enable
value-added applications, including live video broadcasting, high-speed data,
toll-quality voice and multimedia content. Most importantly, the WiMAX (IEEE
802.16) standards were developed based on the concept of an "all IP Network".
A
complete set of IP-based functions and interfaces allow for high quality service
delivery, while keeping end-to-end Quality of Service (“QoS”) and minimizes
investment and operating costs for operators with its distributed architecture
and efficient, packet-based air interface.
WiMAX
offers two technological advantages to the operators relative to the existing
commercial technologies: (i) a superior radio technology; and (ii) an open
IP-based access network infrastructure.
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Superior
radio access technology:
WiMAX benefits from advanced Non-Line-of-Sight (“NLOS”) radio and antenna
technologies such as MIMO, Beam Forming, and Spatial Division Multiple
Access (“SDMA”). These new technologies can be used in fixed, portable and
mobile WiMAX networks and facilitate high spectral efficiency and
obstacle
penetration (e.g., walls) resulting in best network coverage, capacity
,
low latency and improved user experience. As a result, WiMAX offers
lower
infrastructure costs and reduced cost per subscriber for the operator,
compared with any other wireless
technology.
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Utilizing
its build-in strong QoS mechanisms, WiMAX technology has the capacity to deliver
maximal service quality under the subscriber’s Service Level Agreement (SLA) to
enable rich value-added applications, including high-speed data and Internet,
live video multicasting, toll-quality voice and multimedia content in both
download and streaming formats. These capabilities enable toll-quality delivery
of differentiating services, coupled with enhanced subscriber Quality of
Experience (“QoE”).
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Open
IP-based access network infrastructure:
The WiMAX (IEEE 802.16) standard was developed based on the concept
of an
open “all IP Network,” which allows WiMAX to leverage the vast IP-based
telecom and enterprise industries. WiMAX, as an IP-based connectivity
standard, is able to easily and smoothly interface with any IP-based
equipment, device or network. This approach, following the success
of the
World-Wide-Web Internet adoption, (a) minimizes investment in introducing
new applications, thereby creating new interfaces and interoperability
connections, (b) enjoys the low prices and abundance of information
and
know-how of the IP-based equipment world and (c) may significantly
reduce
the operator’s capital and operational expenditures when deploying such
service networks. Therefore, the advantage of WiMAX over other mobile
networks is in offering a complete OPEN IP architecture. The formation
of
an industry based on OPEN IP architecture can leverage on best-of-breed
IP
network equipment and IP-based consumer electronics devices, thus
creating
an open Internet model of wireline data over the new wireless WiMAX
network.
|
The
WiMAX
standards are defined by the WiMAX Forum™. The WiMAX Forum™ is a non-profit
organization focused on increasing the widespread adoption of standards-based
products in the wireless broadband market and leading the industry to mobile
WiMAX solutions. The WiMAX Forum™ members work to promote the interoperability
of multiple vendors’ products in the wireless broadband market. Since its
establishment, the WiMAX Forum™ members, working together with the IEEE, have
established the first of the standards on which fixed wireless broadband systems
will operate, namely the IEEE 802.16d-2004 standard and IEEE 802.16e-2005.
These
standards fully support fixed and nomadic broadband wireless
applications.
The
WiMAX
Forum™ defines the following types of access to a wireless network:
|
·
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fixed
access, at a single stationary location for the duration of the network
subscription;
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|
·
|
nomadic
access, at multiple stationary locations, allowing the user to change
locations between sessions;
|
|
·
|
portability,
at multiple locations at walking speed, within a limited network
coverage
area, with hard handoffs between
cells;
|
|
·
|
simple
mobility, at multiple locations at low vehicular speed, within a
network
coverage area, with hard handoffs between cells, enabling non-real
time
applications; and
|
|
·
|
mobility,
at multiple locations at high vehicular speed, within network coverage
area, with guaranteed handoffs between cells, enabling service continuity
for all applications.
|
Our
Next Developing Market: Mobile WiMAX and Mobile Broadband for Personal Broadband
Access Service
We
promote a new generation of Personal Broadband networks and services that would
enable subscribers to take their broadband connection with them anywhere and
add
mobility to their broadband service at throughput above 1Mbps. Personal
Broadband will unite the fixed, mobile and multimedia broadband worlds, offering
subscribers a combination of high-speed broadband and mobile services that
are
available anywhere. Personal Broadband will offer always-on, high-speed and
all-
IP-based connectivity, providing direct access to the mobile Internet and
creating a dynamic market for various services and applications.
Personal
Broadband capabilities are anticipated to be embedded in a wide range of
computing, telephony and consumer electronics devices to optimize personal
lifestyle and professional productivity. Following the adoption of the Personal
Broadband service offering by telecommunications' operators, business
applications once reserved for the office environment and media content
previously available only through a residential broadband connection, are
predicted to be available anywhere. These new Personal Broadband capabilities
would enhance traditional service provider business models and create
opportunities for new entrants to penetrate the market with alternative business
strategies.
However,
for this next service level of Personal Broadband services to be adopted by
consumers and businesses, the technology must offer tight security, reliability,
high quality of service and broadband data speeds; in addition, vendors must
offer diverse and innovative applications with the right devices to utilize
the
applications.
To
differentiate themselves and target subscribers with higher ARPU, operators
are
interested in providing what may be characterized as “mobile DSL” connectivity
with the primary application of “mobilizing the Internet,” namely broadband
Internet connectivity while on the go. So far, no technology has been able
to
technically or economically support this type of service, which would be
targeted initially to highly developed, metropolitan areas.
We
believe that WiMAX is currently the technology that is the most advanced and
best suited to cost-effectively meet the requirements of Personal Broadband.
WiMAX solutions, in addition to being standards-based, benefit from the open
architecture of an all-IP network. Legacy wireline and wireless technologies
are
indeed standard but not entirely IP-based with an open architecture, as is
WiMAX. The WiMAX industry, in contrast to other telecom standards and
technologies, leverages the consumer electronics market capabilities, such
as IP
innovation, creativity, low cost and advanced services. Alvarion is aiming
to be
at the center of this dynamics via its position as a member of the WiMAX
Forum™
and via
its go-to-market strategy and business relationships with various partners.
COMPANY
STRENGTHS
For
more
than 15 years, our primary business activity has been focused on fulfilling
the
growing demand for IP wireless broadband in the telecom industry by providing
solutions and services to build wireless broadband networks. In addition, we
have deployed through our customers fixed wireless broadband solutions for
applications, such as toll quality telephony service, mobile base station
feeding, hotspot coverage extension, municipal and community interconnection,
utility company metering and monitoring applications, as well as public safety
communications. The Company’s key strengths include:
·
|
Market
Leadership and Brand Recognition:
We
believe we are the worldwide leading WiMAX vendor with a single business
focus in broadband wireless access equipment and we enjoy a strong
brand
identity.
|
·
|
Customer
Base:
We
have a broad customer base, with over 200 WiMAX commercial deployments
and
over 30 WiMAX trials (as of December 31, 2007) targeted to mobile
applications. We believe our product offerings are the most extensive
in
the market.
|
·
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Technology:
We have 15 years of broadband wireless IP experience and have been
the
leader in broadband wireless access market for more than a decade.
In
addition, we have continued our leadership in the relevant standardization
organizations (IEEE 802.16, WiMAX
Forum™).
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·
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Execution
Capabilities:
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We
have the ability to deliver and deploy a complete solution in terms
of
product, technology, network deployments and to build long-term customer
satisfaction.
|
|
|
We
believe we have the ability to compete with any other player in this
industry, while keeping our flexibility and technology differentiators
according to customer demands and
needs.
|
·
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Partnerships:
We
are actively partnering with industry and market leaders to create
go-to-market partnerships and best-of-breed end-to-end wireless broadband
network solutions.
|
Our
Wireless Broadband Experience Enables Us to Leverage the Potential of
WiMAX
Our
wireless broadband experience enabled us to identify the potential of WiMAX
in
early 2002, ahead of most equipment vendors. As a result of this experience
and
early strategic decisions, by 2007, we led the market in the number of deployed
WiMAX-based networks. We have been at the forefront of developments with WiMAX
technology since its inception, at a Company and industry level. Examples of
our
active involvement include major roles in the standardization process through
our work in the WiMAX Forum™ as a charter board member and by chairing key
working groups. In addition, our employees are active in other related
technology organizations, such as Wireless Communications Association, IEEE
802.16, ETSI BRAN-HiperMAN and ITU standards.
Single
Evolving WiMAX Platform
We
believe that we hold a distinct advantage in the nascent market for Personal
Broadband services. Our WiMAX platform was designed from the ground up according
to the IEEE 802.16 standard and WiMAX Forum specifications to provide operators
with Primary
Broadband
solutions, Personal Broadband solutions and a path of service growth required
to
extend the service offering from Primary to Personal Broadband services. With
our single and evolving WiMAX platform, we strive to enable our customers to
complement their business models with innovative service offerings.
STRATEGY
FOR GROWTH
Our
strategy for future growth is focused on providing complete end-to-end broadband
wireless solutions, maintaining our current leadership position in existing
Primary
Broadband
markets
and growing along with the market demand for fixed and nomadic applications,
while leveraging our strengths to become a significant participant in the
Personal Broadband market.
Opportunities
for Providing Personal Broadband Solutions Based on OPEN
Architecture
The
developing demand for Personal Broadband services has caused us to expand our
focus to include a new set of users, both in terms of socioeconomic groups
and
geographic markets. The developing demand has also led us to target a different
type of telecom operators. With our experience and knowledge of wireless
technologies, we believe that WiMAX technology will be the one that best
satisfies Personal Broadband needs. In addition to its high technical
capacities, the interoperability and standardization of WiMAX-based products
and
networks are expected to offer lower-cost, volume-produced standard chips and
systems. We believe that in turn, these low costs will be passed on to users,
thus encouraging service adoption for Personal Broadband services.
Our
goal
is to become a major global WiMAX vendor of Primary Broadband and Personal
Broadband solutions by being at the forefront of exploring and maximizing the
benefits of open architecture characteristics of WiMAX to create a new
operator-centric model based on best-of-breed solutions from a variety of OPEN
WiMAX ecosystem partners.
The
WiMAX Transformation to OPEN Architecture
The
dynamics of WiMAX creates an all-IP open architecture, removing barriers to
entry and facilitating rapid
innovation. Designed from the start as an open standardized interoperable
technology, OPEN WiMAX is a network strategy that enables a complete ecosystem,
including radio access network equipment,, core network equipment, consumer
electronics, service offerings and applications. This new strategy enables
communication service providers to choose the combination of vendors and
partners that best fit their specific requirements.
OPEN
WiMAX is designed to enable multiple telecom vendors to build a best-of-breed
telecom access network in an open standard architecture. It creates a telecom
operator-centric offering/concept/culture as opposed to a vendor-centric
approach historically used in large telecom projects.
OPEN
WiMAX is open to innovation and is intended to enable an offering of mass-market
consumer electronics combined with low cost and economies-of-scale. OPEN WiMAX
is highly scalable and suitable for large, medium or small deployments that
assist operators to optimize WiMAX network deployment costs, fit the
expenditures to the desired services-centric network - both in terms of capital
expenditures and operating expenses during the operation of the network. This
“mix and match” multi-vendor approach may promote competition, which drives
prices down and enhances the product offering. Innovative products and services
for WiMAX, such as mobile TV and mobile gaming for personal use and Virtual
Private Network and File Transfer for business use, enable vendors to
distinguish themselves from the competition.
Open
networks in general, and OPEN WiMAX in particular, promote the long-term success
of service providers in the highly competitive markets of broadband services,
by
offering the following:
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·
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superior
performance combination (i.e., “best-of-breed”) of network equipment to
meet service providers’ requirements;
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·
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wide
variety of subscriber service and openness to enable future services
and
applications;
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·
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increased
purchasing power to promote service providers business model;
and
|
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improved
risk management, including sustainability against possible changes
in
vendors’ strategy, products and services, as the service provider is not
limited to a single or only a few
vendors.
|
We
believe that, in the near future, operators will build open IP networks. WiMAX
is based on open IP networks; therefore, the OPEN WiMAX strategy is a direct
implementation of one of the strong WiMAX innovation fundamentals. We believe
that pure players (meaning companies focused on a single field of activities
that are not diversified), each an expert in its own field, will team to create
best-of-breed offering. We believe that adopting our OPEN WiMAX strategy,
differentiate us from our competitors and provide us with a competitive
advantage over large telecom vendors, as we offer a best-of-breed one stop-shop
rather than a-single offering from a single vendor.
An
example of our expanding OPEN WiMAX ecosystem is our cooperation with Accton
Technology Corporation of Taiwan with whom we formed AWB in January 2007, to
develop mass market cost-effective WiMAX consumer electronic devices. These
devices are intended to complement our WiMAX offerings while facilitating the
availability of WiMAX- based Personal Broadband services. This cooperation
is
planned to augment Alvarion’s 4Motion™, our OPEN WiMAX solution, by
including a variety of industry-standard, WiMAX-enabled devices and
customer-premise equipment while enhancing the number and types of
self-installable and outdoor WiMAX subscriber units. See “—Products—4Motion™
Solutions.”
PRODUCTS
BreezeMAX
Platforms - our WiMAX Solutions for fixed, nomadic and mobile
applications
Our
WiMAX-based BreezeMAX Frequency Division Duplex ("FDD") and Time Division Duplex
("TDD") (“BreezeMAX”) platforms are designed from the ground-up according to the
IEEE 802.16 standard. BreezeMAX platforms feature advanced OFDM and
OFDMA
technologies to support NLOS operation, adaptive modulation up to QAM64 and
the
highest spectral efficiency available. Currently commercially available and
operating in the 2.3, 2.3WCS, 2.5, 3.3, 3.5, 3.6 and 5.2 GHz licensed frequency
bands, BreezeMAX meets the immediate customer demand for cost-effective, next
generation broadband wireless systems with a platform designed around the
implementation of the IEEE 802.16 and HiperMAN standards by the WiMAX Forum™.
The BreezeMAX carrier-class design supports broadband speeds and QoS to enable
carriers to offer quadruple play (meaning broadband data, voice, mobility and
multi-media) services to thousands of subscribers in a single-base
station.
BreezeMAX
has quickly become a popular solution for operators offering fixed
high-bandwidth, VoIP and data services to evolve their networks to
industry-standard solutions with improved outdoor and indoor CPE economics.
The
platform includes an enhanced offering of primary voice services and allows
the
operator to leverage legacy voice infrastructure. The system’s features and
cost-effective, versatile subscriber units make BreezeMAX a preferred broadband
wireless solution for service providers who are interested in improving their
business model.
In
July
2003, Intel Corporation announced its intention to develop an IEEE
802.16d-compliant silicon chip and by September 2005, we developed the
subscriber unit that uses that chip. In June 2006, we introduced BreezeMAX
Si, a
self-installable ("Si"), indoor WiMAX CPE based on the IEEE 802.16-2004 standard
and using the Intel® PRO/Wireless 5116 broadband interface (WiMAX chip). The
BreezeMAX PRO CPE was the world’s first subscriber unit that integrated the
Intel® PRO/Wireless 5116 broadband interface and marked an important step for
the industry moving toward the widespread adoption of WiMAX standard
products.
From
the
last quarter of 2006, we have introduced commercially outdoor and indoor Si
CPEs
based on Intel last generation WiMAX chipset, Intel Connection 2250 (also called
Rosedale 2). The advantage of these CPE is in supporting
both standards of IEEE 802.16-2004
and 802.16-2005 as well as both duplex of FDD and TDD modes of operations in
a
single hardware. During last year, the BreezeMAX indoor Si CPE opened the door
for Personal Broadband and Primary Broadband WiMAX standard-based solutions
and
enabled nomadic services via quick deployments based on a plug-and-play
installation. In addition, the BreezeMAX indoor Si CPE enabled centrally
provisioned, portable connectivity for subscribers to use the CPE in various
points within the network coverage and reconnect to the service after moving
from one location to another.
The
BreezeMAX’s FDD platform was designed according to the IEEE 802.16-2004
standard, partially certified by the WiMAX Forum™
during
2006 for fixed and nomadic networks, for both Base Stations and CPEs. In early
2007, we introduced our TDD pre-certified IEEE 802.16-2005 platform that was
designed for fixed and nomadic networks. Our new BreezeMAX platform, which
is
part of our 4Motion solution that is under development, is expected to provide
support for fixed, nomadic and mobile WiMAX, and is being designed according
to
the IEEE 802.16e-2005 standard for portable and mobile networks.
IEEE
802.16e-2005 compliant technology enables portable and mobile networks to be
IP-based, with a focus on open standards, end users and consumer devices.
Portable access is defined according to the WiMAX Forum™
to apply
to handsets, PDA, laptop Personal Computer Memory Card International Association
("PCMCIA") or mini cards at multiple locations, at least at walking speed,
and
enables a hard handoff of devices, in which the subscriber terminal is
disconnected from one base station before connecting to the next base station.
Mobile access ranges in scope from low to high vehicular speeds but adds PDAs
and smart-phone devices, multiple locations and enables a soft handoff, in
which
the subscriber maintains a simultaneous connection with two or more base
stations for a seamless handoff to the base station with the highest quality
connection. Both consumer and business users have driven the demand for this
technology that has resulted from the convergence of fixed broadband networks
and mobile voice networks towards mobile broadband communications.
4Motion™
Solution
Our
mobile
WiMAX
solution, called 4Motion, was introduced to the market during the second half
of
2006 and is expected to be commercially available during 2008. This timeframe
target is planned to coincide with the availability of mobile
OPEN
WiMAX, our Personal Broadband-enabled devices, which utilize chips currently
at
the end of the development
phase.
4Motion™ is an end-to-end mobile WiMAX solution designed to comply with the
IEEE
802.16e-2005
standard. The solution portfolio is developed in conjunction with leading
providers of core network and IP technology, devices and integration services.
4Motion™ is expected to offer an open, end-to-end, carrier-class, scalable and
cost-effective mobile broadband data solution that delivers Personal Broadband
services of several Mbps per subscriber or more. Offering the benefits of the
OPEN WiMAX approach to network strategy, our 4Motion™ solution is expected to
provide operators with the flexibility to choose best-of-breed multi-vendor
partners to add third-party
IP
services, while controlling costs.
The
4Motion™ solution includes Radio Access Network ("RAN"), which is based on
Alvarion’s BreezeMAX WiMAX base-station
platform
and includes third parties’ core network, radio and IP networking elements,
end-user devices and subscriber applications.
We
expect
4Motion™ to enable a wide range of deployment scenarios, such as (i) personal
mobile and fixed broadband, (ii) wireless DSL, (iii) residential and business
quadruple-play and (iv) municipal, public safety and video
surveillance.
We
also
expect 4Motion™
to
support broadband connectivity for both business and personal services such
as
mobile TV, online gaming, instant messaging (IM), VoIP, video conferencing,
Internet browsing, mobile applications, location-based services ("LBS"), VPN
and
file transfers ("FTP").
Our
Wireless Broadband Access Solutions (Non-WiMAX)
Although
our primary focus is to provide solutions based on the WiMAX standard, we also
continue to sell our non-WiMAX products in the short and mid-term. We provide
a
broad range of integrated fixed wireless broadband solutions, addressing
different markets and frequency bands, designed for the various business models
of carriers, service providers and private network operators. Our products
are
usually used in a point-to-multipoint architecture and address a wide scope
of
end-user profiles, including residential, small office/home office (“SOHO”),
small/medium enterprises (“SME”), multi-tenant/multi-dwelling units (MTU/MDU)
and large enterprises (corporate). Our products operate in licensed and
license-free bands, ranging from 900 MHz to 28 GHz and comply with various
industry standards. Our core technologies include spread spectrum radio, linear
radio, digital signal processing, modems, MAC (media access control), IP-based
mobile switches, networking protocols and very large systems integration
(“VLSI”).
Our
fixed
wireless broadband solutions are based on OFDM technology with NLOS
capabilities, creating more possibilities to cover a wireless access
network.
We
offer
applications in which access to the end user is provided by wireless broadband
systems. These access applications can be utilized by telecom operators, service
providers and regional carriers based on the needs of their regions of
operation. Fixed wireless broadband solutions are implemented in a modular
infrastructure, enabling swift, cost-effective roll-out as needed. Sectorized
base stations are deployed to provide radio coverage to the targeted area,
and
frequency channels are reused in non-adjacent base station sectors, making
the
most efficient use of the available spectrum. Base stations are connected to
the
operator’s central office, or point-of-presence, using wired or wireless
point-to-point solutions. End users are provided with customer premises
equipment, or CPE, typically consisting of an outdoor unit with a radio and
an
antenna connected to an indoor unit or indoor self-installed unit, who present
voice and data interfaces to the customer network. The entire wireless broadband
network is connected to the carrier backbone.
BreezeACCESS
Products (BreezeACCESS II, XL, VL, OFDM)
BreezeACCESS
enables fixed high-speed data and voice, point-to-multipoint wireless broadband
applications. BreezeACCESS access products operate in several frequency bands
to
meet the needs of service providers and telecom operators worldwide. The
BreezeACCESS product family consists of base stations, including access units,
controllers and subscriber units, the latter of which operate optimally when
connected to computers or computer networks utilizing the Internet Protocol.
The
subscriber units include subscriber units for data applications and subscriber
units for data and telephony applications. BreezeACCESS is modular in design,
allowing for a low initial investment, and is scalable for future
growth.
BreezeACCESS
OFDM products support fixed higher speed wireless broadband access products
currently in the licensed 3.5 GHz band, and they provide gross data rates of
up
to 12 Mbps.
BreezeACCESS
VL, OFDM-based fixed products operate in the 0.9, 4.9, 5.2, 5.3, 5.4, 5.7 GHz
bands, which are mostly unlicensed, and provide gross data rates of up to 54
Mbps. BreezeACCESS Wi2
combines
the advantages of Wi-Fi access with the capabilities of BreezeACCESS VL systems
to provide cost-effective solutions for Personal Broadband services today.
With
its design, BreezeACCESS Wi2
gateway
solutions can be deployed almost anywhere to provide Personal Broadband to
standard IEEE 802.11 b/g end user devices such as laptops, PDAs, smart-phones
and portable gaming devices. BreezeACCESS Wi2
solutions are ideal for operators, municipalities and communities looking to
build metropolitan broadband networks or to integrate Wi-Fi hot zone
capabilities into their existing broadband wireless access networks. This
solution provides Personal Broadband services ranging from public Internet
access to public safety and Intranet applications.
OFDM
technology, on which BreezeACCESS OFDM and BreezeACCESS VL are based, enables
higher data rates, up to 12 Mbps in the case of BreezeACCESS OFDM, and up to
54
Mbps in the case of BreezeACCESS VL, by utilizing the available radio spectrum
in an efficient manner. In addition, OFDM technology enables NLOS operation
with
robust resistance to interference. OFDM-based products enable carriers to use
the technology in applications where a high data rate is required, including
serving medium to large enterprises and high-speed backbone applications. The
BreezeACCESS VL OFDM-based system, which utilizes our proprietary air protocol
and broad set of features along with a high power radio, uses our “open
platform” architecture and may be used with other BreezeACCESS band versions
(BreezeACCESS II, XL, V or OFDM), giving operators the flexibility to use one
band for service provisioning to residential, SOHO and SME customers, while
reserving high bandwidth for large enterprises and MTUs.
BreezeACCESS
wireless DSL products include BreezeACCESS II, BreezeACCESS XL, BreezeACCESS
VL
and BreezeACCESS OFDM.
BreezeACCESS
II products operate in the unlicensed 2.4 GHz ISM band and provide gross data
rates of up to 3 Mbps.
BreezeNET
B Product
Our
BreezeNET B products are designed to provide highly reliable,
building-to-building bridging solutions, support mobile connectivity and provide
individuals or small groups of users with wireless access to a LAN.
BreezeNET
B products function as a wireless bridge system that provides high-capacity,
high-speed point-to-point connectivity. The BreezeNET B system operates in
the
unlicensed 5GHz band and enables operation in near and non-line-of-sight
environments such as buildings, foliage or ridgelines. The system also features
adaptive modulation for automatic selection of modulation schemes to maximize
data rate and improve spectral efficiency. BreezeNET B supports security
sensitive applications through optional use of authentication and/or data
encryption. The system supports Virtual Local Networks (“VLANs”), which enable
secure operation, and VPN services, which allow tele-workers or remote offices
to conveniently access their enterprise network.
eMGW
Products
The
enhanced MultiGain (eMGW) solutions are cost-effective, rapidly deployable,
point-to-multipoint fixed wireless access systems that provide data and voice
services for both residential and small business users, mainly in suburban
and
rural environments. Utilizing radio links instead of copper lines to bridge
the
last mile, the eMGW products enable rapid deployment of quality services to
residential or SOHO customers. The products ensure the optimal utilization
of
the available spectrum and minimum interference, regardless of
topography.
eMGW
provides fast Internet access, corporate access and carrier-class telephony
in a
single system. It also enables LAN-to-LAN connectivity over IP-VPN tunnels
for
businesses, fax (G3) and dial-up modem (v.92/56Kbps) services for residential
subscribers and leased line services. eMGW operates in a broad range of licensed
and unlicensed (ISM) bands, from 1.5 to 5.7 GHz. eMGW provides coverage of
up to
25 kilometers in very challenging environments and operates in NLOS installation
scenarios. The eMGW is the optimal price / performance fixed wireless access
system for operators who need to: provide coverage to subscribers in green
fields, upgrade existing networks with advanced data services and provide
wireless DSL services in low and medium subscriber density areas.
eMGW,
which has a scalable and modular architecture, is comprised of an indoor base
station controller, an outdoor base station radio, an indoor subscriber
interface and an outdoor subscriber terminal. It also includes a network
planning tool and a network management system featuring fault, configuration,
performance and security management.
eMGW
is
based on our frequency hopping Code Division Multiple Access ("CDMA") technology
and utilizes our innovative “hybrid switching” transmission technology,
combining circuit switching for toll quality voice and packet switching for
fast
data services, optimizing the utilization of spectrum resources. This “hybrid
switching” concept provides a solution for the economic and technological
challenges facing network operators today.
WALKair
Products
The
WALKair
system
is a wireless broadband system that enables carriers to provide high-speed
Internet access, other data services and voice services primarily to SMEs.
WALKair’s
high
spectral efficiency, dynamic bandwidth allocation, effective frequency reuse
plan and high coverage capacity enable carriers to connect last-mile business
subscribers to their network in an efficient and cost-effective
manner.
Our
WALKair
products
consist of WALKair
1000
that
operates in the 3.5, 10.5 and 26 GHz licensed bands, and WALKair
3000
that
operates in the 3.5, 10.5, 26 and 28 GHz bands.
WALKair
products
are based on time division multiplexing (TDM) technology. WALKair
systems
support a complement of value-added classes of services including VPN, VLAN
and
QoS, based on per-user allocation of committed data rate and maximum data
rate.
WALKair
3000
accommodates carriers’ requirements for broader bandwidth, primarily driven by
the growing use of data-intensive Internet applications. It also enables
carriers to efficiently connect multiple subscribers in multi-tenant buildings
by a single terminal station. WALKair
3000
supports significantly broader bandwidth for each customer and increased
capacity for each cell, increasing the peak speed of transmission of each
terminal station to up to 36 Mbps. WALKair
3000
integrates smoothly with WALKair
1000,
which enables carriers to deploy both systems on the same base station, serving
a variety of subscribers with different needs for communication services, within
the same cell.
Network
Management Solutions for Both WiMAX and Non-WiMAX Wireless Broadband
We
provide advanced management applications for our wireless solutions. Our network
management applications are equipped with graphics-based user interfaces and
provide a set of tools for configuring, monitoring and effectively managing
our
wireless broadband networks. Our flagship carrier-class Network Management
System is the AlvariSTAR, fully compliant with Telecommunications Management
Network (TMN) standards and simplifies network deployment and maintenance for
networks of every scale. AlvariSTAR can be used to manage multiple Alvarion
solutions, including BreezeMAX, 4MotionTM,
BreezeACCESS VL and BreezeNET B.
Our
full
portfolio of network management products include:
AlvariSTAR,
which
configures, monitors and manages our BreezeMAX,
4Motion
and BreezeACCESS
products;
WALKnet,
which
configures, monitors and manages our WALKair
products; and
IMS,
which
configures, monitors and manages our eMGW product.
AlvariSTAR,
WALKnet and IMS are multi-platform simple network management protocol (SNMP)
applications. Using standard and private SNMP agents incorporated in the
products, these applications, operating under the HP Open View network
management platform, enable configuring, managing faults and monitoring
performance of all system components from a central management
station.
Accessories
Offered by Alvarion
In
order
to support our products and provide comprehensive solutions to our customers,
we
provide a family of accessories designed to extend the range of our BreezeMAX,
4Motion, BreezeACCESS, WALKair and BreezeNET solutions. These accessories
include antennas, cables, surge arrestors, amplifiers and other components.
Our
Geographic Markets
Until
now, our network installations have been typically found in developing regions
in developed countries and in emerging markets.
Within
developed countries (defined as countries with overall high levels of economic
prosperity), there are rural or suburban regions with low-density populations,
often extending over vast distances, that have limited telecommunications
infrastructures. WiMAX and wireless broadband have made inroads in these areas
due to the business opportunities, robust equipment, extensive coverage and
non
line-of-sight capabilities. In addition, government assistance in “closing the
digital divide” in these countries has served as an incentive for alternative
operators to consider WiMAX systems for providing broadband services. Examples
of these locations have been identified in the United States, Western and
Eastern Europe, Asia Pacific and South America.
We
believe that wireless broadband service providers in emerging markets have
found
that deploying wireless broadband and new WiMAX solutions where
telecommunication coverage is lacking due to poor infrastructure is an
affordable means to provide broadband and telephony services. Emerging markets
are countries where basic voice services combined with broadband data remain
scarce. Examples of these locations are in Africa, Commonwealth of Independent
States, former USSR ("CIS"), Latin America, Central America and Asia
Pacific.
In
2007,
the industry continued to show additional WiMAX penetration and a growing
interest primarily in emerging markets and developing regions within developed
countries. In addition, the WiMAX industry began to provide cost-effective
infrastructure that can compete with broadband DSL and cable operators in the
developed countries. In 2007, the industry showed signs of adoption of WiMAX
for
Personal Broadband services. We are increasing our sales and marketing efforts
in certain regions in developed countries by offering our nomadic and portable
solutions and our Personal Broadband and mobile applications in highly populated
areas.
We
hope
to continue to benefit from the expected evolution of WiMAX, building from
nomadic and portable, to fully mobile services, enabling us to penetrate
the high-end, metropolitan consumer and business user groups.
Geographic
Breakdown of Our Revenue
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
|
In
thousands
|
|
North
America
|
|
$
|
29,564
|
|
|
16.7
|
%
|
$
|
25,047
|
|
|
13.8
|
%
|
$
|
32,767
|
|
|
13.8
|
%
|
Latin
America
|
|
|
32,946
|
|
|
18.6
|
%
|
|
30,857
|
|
|
17.0
|
%
|
|
50,982
|
|
|
21.5
|
%
|
Europe,
Middle East and Africa
|
|
|
102,685
|
|
|
58.0
|
%
|
|
111,959
|
|
|
61.6
|
%
|
|
132,883
|
|
|
56.2
|
%
|
Asia
Pacific
|
|
|
11,732
|
|
|
6.7
|
%
|
|
13,731
|
|
|
7.6
|
%
|
|
19,941
|
|
|
8.5
|
%
|
|
|
$
|
176,927
|
|
|
100.0
|
%
|
$
|
181,594
|
|
|
100.0
|
%
|
$
|
236,573
|
|
|
100.0
|
%
|
General
- Industry Market Segments and Players
The
operators in the wireless broadband market fall within the following categories,
as determined by the industry:
(i)
Communications Service Providers: Tier One and Tier Two
Operators
Tier
One
and Tier Two carriers - both Fixed Network Operators ("FNOs") and Mobile Network
Operators ("MNOs") - form the largest and most established telecom operators,
with nationwide or global presence, serving tens of million of users. These
carriers are a primary focus for our WiMAX equipment since these carriers have
a
strong, strategic interest in deploying WiMAX in their network. Tier One and
Tier Two carriers are looking for the technology to keep them at the front
line
of communications business within their home countries, as well as to quickly
expand their business by providing telecommunications services in neighboring
countries. Examples of Tier One and Tier Two carriers that have publicly
indicated their strategy include: Telkom South Africa Ltd., Cable & Wireless
International, Telenor, Sviaz Invest ,Nippon Telegraph and Telephone West
Corporation (NTT West), AT&T, France Telecom, Eircom, Bharti Tele-Ventures
Limited (Airtel Enterprise Services) and Telefonos de Mexico S.A. de C.V.
Historically, such operators have shifted slowly to new technologies, although
many of them are involved in trials with our WiMAX equipment.
In
addition, cellular operators are able to leverage their infrastructure, radio
base-station sites and customer base, together with their marketing, services
and billing platforms and customer support investments, to offer media centric,
Personal Broadband services and competitive broadband Internet access services
to their existing customers or new customers. Examples of operators in this
group include Orange, Vodafone, Vodacom, Digicel, T-Mobile, Cegetel, Megafone,
Meditel, MTN, China Mobile and Entel (Chile).
Innovative
Challengers
Innovative
Challengers are the broadband service providers that are building their business
model primarily on WiMAX solutions, while providing in many cases improved
services compared to legacy telecommunication operators. Innovative Challengers
are expected to constitute a greater portion of the WiMAX market in the future.
Examples of service providers belonging to this category include Clearwire
USA
and Clearwire International, Bolloré Telecom (France), Digital Bridge (USA),
WiMAX Telekom (Austria), Enforta (Russia), Free (France), Iberbanda in Spain
(a
subsidiary of Telefonica de Espana), WorldMAX (Holland), Irish Broadband and
Ertach (Argentina). We also expect Innovative Challengers to become early
adopters of WiMAX portable and mobile services.
CLECs
& Regional Carriers
Competitive
Local Exchange Carriers (“CLECs”) seek to compete effectively with the Incumbent
Local Exchange Carriers (“ILECs”). Wireless broadband is an attractive and
cost-effective last-mile alternative to wired access solutions. CLECs are
deploying our products to provide voice and broadband services in rural and
suburban areas where wireline infrastructure does not exist or does not support
the demand. In addition, in the areas of landline infrastructure in developed
countries, wireless broadband systems offer carriers the ability to reach
otherwise inaccessible customers, while providing increased bandwidth
flexibility and service differentiation, surpassing the inherent limitations
in
wireline infrastructure.
CLECs
have constituted an important part of our focus in our fixed wireless access
product line and have increasingly exhibited an interest in WiMAX. The reduced
installation costs, rapid roll-out potential and modular architecture, coupled
with high network capacity and coverage and enhanced service options, present
an
attractive alternative to service providers and regional carriers seeking to
supply their customers with reliable comprehensive data and voice solutions.
Examples of these operators include Euskaltel (Spain), Finnet (Finland), TDS
(USA), Czech on line, Altitude (France), KDN (Kenya), Millicom and Peterstar
(Russia).
Government,
Municipalities, Communities and Private Network Operators
Private
and government sectors that operate private networks for business management
and
operations are in constant need of deploying technologies to support their
operational requirements. Examples of such requirements are enterprises that
require leased line replacement for cost-effective connectivity to provide
VoIP
and data services; metropolitan area networks for broadband connectivity;
metering and monitoring applications used by utility companies to collect
information and supervise operations; and cost-effective access within
communities, municipalities and educational institutions. Another area that
has
leveraged broadband wireless very effectively has been surveillance, public
safety and municipal applications. Government authorities and private bodies
with government sponsored funds have begun to deploy broadband wireless systems
to support remote video surveillance, traffic flow management, back-up for
disaster recovery, leased line replacement, various forms of backhaul and other
public safety uses. Examples may be found in various U.S. communities such
as
Lenexa, Kansas and Corpus Christi, Texas, and many others in the Silicon Valley.
2007
Partial Customer List for WiMAX and Other Fixed Wireless Broadband
Systems
Telecom
carriers and service providers using our products include, among others:
· AIRCEL,
INDIA
· ALLEGRO
NETWORKS, AUSTRALIA
· ALLTEL,
USA
· ALTITUDE
TELECOM, FRANCE
· ASIA
PACIFIC TELECOM GROUP (APTG), TAIWAN
· BHARTI
TELE-VENTURES LIMITED ( AIRTEL ENTERPRISE SERVICES), INDIA
· BUTLERNETWORKS,
DENMARK
· CABLE
& WIRELESS, Worldwide
· CENTER
TELECOM,
RUSSIA
· CHUNGWA
TELECOM, TAIWAN
· DIGICEL,
CARIBBEAN
· DIGITAL
BRIDGE COMMUNICATIONS, USA
· EMTEL,
MAURITIUS
· ENFORTA,
RUSSIA
· ENTEL
CHILE SA, CHILE
· ERTACH
SA
(formerly MILLICOM), ARGENTINA
· FINNET
GROUP, FINLAND
· GHANA
TELECOM, GHANA
· IBERBANDA,
S.A., SPAIN
· IRISH
BROADBAND INTERNET, IRELAND
· JSC
COMSTAR - UNITED TELESYSTEMS, RUSSIA
· MEGAFONE,
RUSSIA
· MONACO
TELECOM,
MONACO
· MONARCH
COMMUNICATIONS,
NIGERIA
· MTN
UGANDA, UGANDA
· NETIA
S.A., POLAND
· NGI,
ITALY
· NTT
WEST,
JAPAN
· RACSA,
COSTA RICA
· SOVINTEL,
RUSSIA
· TELECOM
NAMIBIA, NAMIBIA
· TELEFONICA
CELULAR DEL PARAGUAY
· TELEKOM
SERBIA, SERBIA
· TELKOM
SOUTH AFRICA LTD., SOUTH AFRICA
· TPSA
POLAND, POLAND
· TRANS
TELEKOMUNIKACJA POLSKA S.A., BULGARY
· UKRANIAN
HIGH TECHNOLOGIES, UKRAIN
· VODAFONE
ROMANIA S.A., ROMANIA
TECHNOLOGIES
UNDERLYING OUR PRODUCTS
We
use
internally developed core technologies and continue to invest heavily in
augmenting our expertise in networking, radio and digital signal processing
(“DSP”) modem technologies. We also participate as active members in
international standards committees.
Networking
Technology
To
support the OPEN WiMAX concept and our 4Motion™
solution
as well as our BreezeMAX and other products, we have developed or otherwise
acquired, and continue to invest in, networking expertise in the areas of IP
Access Mobile IP that is particularly adapted for mobile WiMAX networks, Access
Service Networks Gate Ways (“ASN-GW”), Point-to-Point Protocol Over Ethernet
(“PPPoE”) tunneling, VPN and VoIP, based on industry standards such as H.323,
SIP and MGCP, and other Internet standards and protocols. To support the
SentieM™
technologies
embedded
in our 4Motion™
solution
as well as our BreezeMAX and other products, we have developed or otherwise
acquired, and continue to invest in, distributed
radio architecture and
hierarchical
ASN-GW network architecture.
We have
also developed, and are continuing to develop, know-how to satisfy market
requirements with respect to quality of service, classes of services, committed
information rate, maximum information rate, virtual LAN management and
prioritization. We are developing access technology based on the IEEE
802.16-2004 (16d) and the IEEE 802.16e-2005 (16e) standards, as well as the
WiMAX Forum™ technical specifications for both radio access and networking to
further support the needs of customers using WiMAX. We have also developed
a
network management system that provides network surveillance, monitoring and
configuration capabilities for all our products.
The
PSTN
FWA MGW system was extended to provide additional data services to wireless
subscribers. The eMGW system was specially designed to support the modern
wholesale network model for carriers. PPPoE, remote and local Dynamic Host
Configuration Protocol ("DHCP") network tools give the network access provider
the ability for fast and inexpensive IP network configuration and interfacing
to
the billing systems.
Radio
Technology
We
have
in-house radio development capabilities to address the diverse frequency bands
and modulation methods of our products. The frequency bands include, among
others, 900 MHz, 2.4 GHz, 2.3, 2.5-2.7 GHz, or MMDS, 3.3-3.8 GHz, 4.9-6 GHz,
10.5 GHz and 26 and 28 GHz. The modulation methods include Frequency Hopping
Spread Spectrum (FHSS), Gaussian Frequency Shift Keying (GFSK), Direct Sequence
Spread Spectrum (DSSS), Single Carrier QAM and OFDM, OFDMA. Our products include
both TDD and FDD radios.
Our
radio
teams specialize in low cost, mass-production oriented radio design. The system
level capability is software-assisted radio auto-calibration, which allows
for
reduced manufacturing costs and compensates for components’ parameter spread and
instability, temperature-related changes and aging of components.
Our
internal radio expertise enables us to attract customers by addressing promptly
new needs, such as new frequency bands.
Digital
Signal Processing ("DSP") Modem Technology
We
maintain strong expertise in DSP and in modem design. Our capabilities include
a
hardware oriented design, as well as programmable DSP oriented design. Our
modem
design hinges on the Software Defined Radio paradigm. The extensive
configurability of our base station modems, through Field Programmable
Gate-Array (FPGA) and DSP reprogramming, allows us to readily introduce advanced
features to our products and to follow amendments to emerging standards,
including capability to upgrade deployed networks by downloading only software.
Similarly, our CPE designs allow for upgradeability through over the air s/w
download, simplifying our customer’s operations.
We
have
developed the BreezeMAX base station platform, which is designed to support
the
WiMAX (IEEE 802.16 and HIPERMAN) air interface specification. The platform
supports the multiple antenna elements per sector to exploit the smart-antenna
signal processing techniques for improved coverage and network capacity. The
programmable DSP-based architecture of the BreezeMAX platform enables us to
support the IEEE 802.16-2004 standard, as well as the IEEE 802.16e-2005 standard
for broadband mobile, while enjoying the benefits of OFDMA and smart-antenna
processing. The base station architecture and capabilities are closely aligned
and synchronized with the CPE application-specific
integrated circuit
(“ASIC”)
and reference design developed by Intel resulting from our collaboration, which
began in 2003, to ensure optimum performance in future WiMAX
deployments.
To
support the SentieM™
technologies
embedded
in our 4MotionTM
solution, as well as our BreezeMAX and other products, we have developed or
otherwise acquired, and continue to invest in MIMO and beam forming, SDMA and
radio resource management technologies.
We
have
also developed mixed signal ASICs containing DSP cores. Inclusion on-chip of
analog-digital converters is instrumental to both cost reduction and power
consumption reduction. First generation ASIC supports our IEEE 802.11-based
FH-GFSK products, with the above-standard capability of delivering 3 Mbps,
with
automatic fall back to 2 Mbps and 1 Mbps as necessary. Our second generation
ASIC is optimized for OFDM modulation, as used by the IEEE 802.11a/g standards
and the recently approved IEEE 802.16a standard. This ASIC is based on
proprietary programmable “very long instruction word” DSP architecture. The
programmable architecture allows us to implement numerous beyond-standard
capabilities, such as OFDMA extensions to the baseline OFDM mode. This
system-on-a-chip ASIC will serve as a key component of our BreezeACCESS-OFDM
products. An additional ASIC developed in-house supports our WALKair products,
with a full duplex point-to-multipoint single carrier trellis-coded 64QAM modem.
An ASIC was developed for the eMGW product to reduce the product’s
costs.
We
designed the FWA eMGW system to provide data services to wireless subscribers
on
top of voice services. The subscriber unit is based on our ASIC implementing
functions of the PHY and MAC layers of the air interface. The eMGW base station
design includes Voice echo canceling and fax/modem detection algorithm to
support high spectrum efficiency while ensuring toll quality voice.
Participation
in International Standards Committees
As
part
of our strategy to become a technology leader and influence the industry in
specific areas, we have, since our inception, been active members in
standardization committees.
We
are a
principal founder of the WiMAX Forum™, a non-profit organization whose members
work to promote adoption of the IEEE 802.16 OFDM/OFDMA standard and to certify
interoperability of compliant equipment. Our representative on the board of
directors of the WiMAX Forum™ is Dr. Mohammad Shakouri, Corporate Vice President
of Marketing at Alvarion, who holds the position of Vice Chair of the WiMAX
Forum™ and chairs the Marketing Working Group. For a more detailed description
of the WiMAX Forum™, please see “—Industry Dynamics—Our Existing Market: WiMAX
and Wireless Broadband for Primary Broadband Access Services—WiMAX Technology,
Applications and Industry Advantages.”
The
scope
of the IEEE 802.16-based standard is the Wireless MAN, supporting larger range
fixed/nomadic/mobile broadband access networks with more performance and
dedicated high-end services. Our engineers actively participate in the technical
group for defining inter-operability profiles and tests. Our representative,
Dr.
Vladimir Yanover, holds the position of co-chair of WiMAX Forum™’s Technical
Working Group (TWG), which is responsible for defining the interoperability
profiles and the interoperability and conformance tests for the IEEE802.16e-2005
standard.
We
actively participate in the IEEE 802.16’s Broadband Wireless Access work group.
Similarly, we are part of the WiMAX Forum™’s groups that define and improve the
OFDM/OFDMA mode for both fixed and mobile broadband applications and that
improve the ability of the IEEE 802.16 standard to increase its market footprint
in license-exempt applications.
Mariana
Goldhamer, Director for Strategic Technologies at Alvarion, is Chair of IEEE
802.16h, which targets Improved Coexistence in License-Exempt deployment. She
is
also ETSI BRAN (Broadband Radio Access Networks) Vice-Chair and HiperMAN Chair.
ETSI HiperMAN has adopted the IEEE 802.16 OFDM mode and has recently embraced
the OFDMA mode. Ms. Goldhamer is acting to harmonize the IEEE and ETSI standards
to create a worldwide broadband standard for converged Fixed-Mobile
applications.
We
have
participated in the IEEE 802.11 wireless LAN work group, which is the driving
force behind increasing the data rate of the frequency hopping modem. Naftali
Chayat, Alvarion’s Chief Scientist, chaired the IEEE 802.11a task group, which
is the first OFDM based high-data rate wireless LAN standard.
We
are
also very active in the international regulatory arena, including ITU-R, which
aims to promote WiMAX in the regulatory domain and to secure the spectrum for
broadband fixed/mobile deployment.
SALES,
MARKETING AND SUPPORT OF OUR PRODUCTS
We
market
our products through an extensive network of more than 200 active partners.
These include OEMs, global and local system integration and service fulfillment
partners in various geographic regions, solution partners, national and local
distribution partners, and resellers. Our distribution partners in turn sell
to
resellers, including value-added resellers and systems integrators, as well
as
to end users. We also market our solutions and products directly to large
operators.
We
currently sell and distribute our products in more than 150 countries worldwide.
The use of different types of marketing channels through our partnership network
enables us to market our products to many different markets and to meet the
differing needs of our customers.
Our
products are aimed at the WiMAX, other wireless broadband and wireless broadband
combined with wireless voice markets. We sell in these markets through OEM
agreements or other strategic partner arrangements with leading
telecommunications suppliers, directly as well as indirectly through our
distribution channels, which market primarily to smaller ISPs and operators.
Additionally, to achieve broad and rapid market penetration, we cultivate direct
relationships with communication service providers. By doing so, we believe
that
we are better able to understand the needs of new operators such as Innovative
Challengers, Tier One and global operators, and are better able to identify
and
anticipate trends in the WiMAX and wireless broadband market.
We
have
established relationships with major telecommunications equipment manufacturers
such as Hitachi Communications Technologies, Nokia-Siemens Networks, Alcatel-
Lucent, Nera Networks and global system integrators, such as Hewlett-Packard
(HP) and IBM. Pursuant to arrangements entered into with these partners, they
are permitted to distribute our products on either a regional or worldwide
basis
under private labels. We are seeking additional strategic relationships with
international partners, strong local partners and other key companies to
increase our exposure and establish ourselves as a supplier to service
providers, telecom markets and end-user markets that are not reached by our
present distribution channels.
We
have
strong relationships with leading incumbents and leading telecom operators
to
whom we sell our solutions directly. Our relationships are primarily based
on
the following common activities: (i) We are building together the industry
and
leadership position; (ii) We have a common strategy and participate in
world-wide standards bodies and consortia; (iii) We have a positive commercial
relationship and share a common vision and joint marketing
activities.
A
distributor of our products is typically a data communications or a
telecommunications marketing organization, or both, with the capability to
add
value with training and first-tier support to resellers and systems
integrators.
We
operate in various regions. Our subsidiaries and representative offices, located
throughout North America, South America, Europe, Africa and Asia, support our
international marketing network.
We
derive
our revenues from different geographical regions. For a more detailed discussion
regarding the geographic allocation of our revenues based on the location of
our
customers, see “Item 5A—Operating and Financial Review and Prospects—Operating
Results.”
We
conduct a wide range of marketing activities aimed at generating name
recognition and awareness of our brands throughout the telecommunications
industry, as well as identifying leads for distributors and other resellers.
These activities include public relations, participation in trade shows and
exhibitions, advertising programs, public speaking at industry forums and
maintaining a website.
We
maintain a highly trained global technical support team that participates in
providing customer support to customers who have purchased our products. This
includes local support by distributors’ and systems integrators’ personnel
trained by our support team, support through help desks and the provision of
detailed technical information on our website, expert technical support for
resolution of more difficult problems, as well as participation in pre-sales
and
post-sales activities conducted by our distribution channels with large customer
accounts and key end users.
We
organize technical seminars covering general technologies, as well as specific
products and applications. We also have qualification programs to advance the
technical knowledge of our distributors and their ability to sell and support
our products. The seminars are held in various countries and in different
languages as needed.
MANUFACTURING
OPERATIONS AND SUPPLIERS
We
currently subcontract most of the manufacturing of our products. We have a
pre-qualification process for our contract manufacturers, which includes the
examination of the technological skills, production capacity and quality
assurance ability of each contract manufacturer. Our manufacturing capacity
planning is based on rolling marketing forecasts done on a monthly basis. The
forecasts provided to the sub-contractors are based on internal company
forecasts, and are up to six months. We purchase our raw materials from several
suppliers.
Our
products are currently manufactured primarily by several contract manufacturers
located in Israel, the Philippines and Taiwan. We perform our quality assurance,
final assembly and testing operations of our products at our facilities in
Tel
Aviv, Omer, and in our leased premises at some of our subcontractors’ facilities
in Israel. We have processes in place for the ongoing performance of quality
assurance at our own facilities and at our subcontractors’ facilities. Equipment
owned by us and used for final assembly and testing is located at our facilities
in Tel Aviv, Omer and in our leased premises at the facilities of some of our
subcontractors in Israel as part of our Approved Enterprise programs.
We
monitor quality with respect to each major stage of the production process,
including the selection of components and subassembly suppliers, warehouse
procedures, assembly of goods, final testing and packaging and shipping.
All
our
manufacturing locations in Israel and in the Philippines are ISO 9001 certified,
which verifies that our manufacturing processes adhere to established standards.
We require that our Israel-based contract manufacturers be ISO 9002 certified.
Our contract manufacturers are ISO 9002 certified. Our Tel Aviv and Omer
locations are ISO9001, ISO 14000 and ISO18000 certified.
PROPRIETARY
RIGHTS
In
order
to protect our proprietary rights in our products and technologies, we rely
primarily upon a combination of patents, trademarks, trade secrets, and
copyrights, as well as confidentiality, non-disclosure and assignment of
inventions agreements. We have 47 patents issued by patent offices in several
countries, with 56 pending patent applications. The proprietary rights described
above are material to our business and profitability. Because our proprietary
rights are diversified and independence of each other, we believe that we are
not dependent on any one patent.
We
have
trademark registrations in Israel, the United States, the European Union and
many other countries. In addition, we have typically entered into nondisclosure,
confidentiality and assignment of inventions agreements with our employees,
consultants and with some of our suppliers and customers who have access to
sensitive information. We cannot assure you that the steps taken by us to
protect our proprietary rights will be adequate to prevent misappropriation
of
our technology or independent development and/or the sale by others of products
with features based upon, or otherwise similar to, those of our
products.
Given
the
rapid pace of technological development in the communications industry, we
also
cannot assure you that our products may not be adjudicated as infringing on
existing or future proprietary rights of others. Although we believe that our
technology has been independently developed and that none of our intellectual
property infringes on the rights of others, from
time
to time, we receive letters alleging we have infringed upon a patent, trademark,
license or other proprietary right. We have no assurance that any such
allegation will
not have
a material adverse effect on
our
business, financial condition or results of operations.
We
license certain technologies from others for use in connection with some of
our
technologies. The loss of these licenses could impair our ability to develop
and
market our products. If we are unable to obtain or maintain the licenses that
we
need, we may be unable to develop and market our products or processes, or
we
may need to obtain substitute technologies of lower quality or performance
characteristics or at greater cost.
THE
COMPETITIVE ENVIRONMENT IN WHICH WE OPERATE
The
markets for our products are very competitive, and we expect that competition
will increase in the future as WiMAX technology is further adopted by major
network equipment providers and when the Personal Broadband WiMAX market
matures, both with respect to products that we are currently offering and with
respect to products that we are developing. We also expect more competition in
this market in light of announcements by large telecom equipment vendors that
they intend to serve this market. We believe the principal competitive factors
in the markets for our products include:
|
·
|
price
and price/performance
ratio;
|
|
·
|
service
and spectrum regulation and product
certifications;
|
|
·
|
ability
to support new industry standards;
|
|
·
|
product
time to market;
|
|
·
|
brand
strength, go-to market capabilities and sales
channels;
|
|
·
|
systems
integration and financing capabilities;
and
|
Companies
that are engaged in the manufacture and sale or the development of products
that
compete with our wireless broadband products include Airspan Inc.,
Alcatel-Lucent, Aperto Networks, Cisco Systems, Ericsson, Huawei Technologies,
Motorola, Nextwave Wireless, Nokia-Siemens Networks, Nortel Networks, Redline
Communications, Samsung, , SR Telecom, and ZTE. Other vendor members of the
WiMAX Forum™ may become our competitors in the future.
Our
products use wireless media, which also compete with alternative
telecommunications transmission media, including leased lines, copper wire,
fiber-optic cable, cable modems and television modems. Our products compete
with
other wireless media technologies, including (i) 3rd Generation cellular
technologies (3G) and (ii) 4th generation cellular technologies ("4G"), such
as
3G Long Term Evolution ("3G-LTE") and UMB ; our products also compete with
satellite technologies.
Some
of
our existing and potential competitors, including some large companies arising
from the continued consolidation in the telecommunications equipment market,
have substantially greater resources including financial, technological,
manufacturing, marketing and distribution capabilities, and enjoy greater
recognition than we do.
Increased
competition in our market results in price reductions, new business alliances,
shorter product life cycles, reduced gross margins, longer sales cycles and
loss
of market shares, which could harm the results of our operations. We have
designed and engineered our products to minimize costs, maximize margins and
improve competitiveness. However, we cannot assure you that we will be able
to
compete successfully against current or future competitors.
GOVERNMENT
REGULATION
Our
business is premised on the availability of certain radio frequencies for
two-way broadband communications. Radio frequencies are subject to extensive
regulation under the laws of each country and international treaties. Each
country has different regulation and regulatory processes for wireless
communications equipment and uses of radio frequencies. In the United States,
our products are subject to FCC rules and regulations. In other countries,
our
products are subject to national or regional radio authority rules and
regulations. Current FCC regulations permit license-free operation in
FCC-certified bands in the radio spectrum in the United States. In other
countries the situation varies as to the spectrum, if any, that may be used
without a license and as to the permitted purposes of such use. Some of our
products operate in license-exempt bands, while others operate in licensed
bands. The regulatory environment in which we operate is subject to significant
change, the results and timing of which are uncertain.
In
many
countries, the unavailability of radio frequencies for two-way broadband
communications has inhibited the growth of these networks. The process of
establishing new regulations for wireless broadband frequencies and allocating
these frequencies to operators is complex and lengthy. The regulation of
frequency licensing began during 1999 in many countries in Europe and South
America and continues in many countries in these and other regions. Licensed
blocks in 2.3, 2.5, 3.3, 3.5, 3.6 GHz were released in some countries. However,
this frequency licensing regulation process may suffer from delays that may
postpone commercial deployment of products that operate in licensed bands in
any
country that experiences this delay. In Europe, the European Civil Code (the
“ECC”) has recently assigned the spectrum in 3.4-3.8GHz to broadband
applications, in a flexible and technology-neutral mode. However the
implementation of the ECC decisions in individual countries may suffer delays
or
may be limited to relatively small amounts of spectrum. In addition to the
above, in some countries, particular frequency bands were allocated for
licensing; for example, in 2007, the AWS band was auctioned by the FCC in the
United States. Our current customers that commercially deploy our licensed
band
products have already been granted appropriate frequency licenses for their
network operation. In some cases, the continued validity of these licenses
may
be conditional on the licensee complying with various conditions. In October
2007, the Radio-communication Sector of the International Telecommunication
Union (ITU-R) made a decision that effectively includes WiMAX technology in
the
IMT-2000 set of standards. There are some that interpret this inclusion of
WiMAX
in IMT-2000 as placing WiMAX on equal footing with the legacy-based technologies
ITU-R already endorses. We note though that establishing new regulations in
individual countries for wireless broadband frequencies and allocating
frequencies to operators is complex and lengthy. The European Commission started
a process to revise the 2.5-2.69GHz regime to provide more flexibility in the
spectrum usage and a more balanced protection of the TDD operation. A change
in
the European regulation may imply a need for revised type approval norms; such
revisions would be a lengthy process.
There
is
a trend to release more license-exempt bands. For example, in the United States,
FCC rules were modified to include an additional 255MHz of spectrum, though
actual use of this allocation is not permitted until a technical issue is
resolved between the NTIA (which manages government-used spectrum) and the
FCC
(which manages commercial and public spectrum). In Europe, the process is
slower. We see potential for new markets in rural areas and developing
countries, created by the availability of licensed-exempt spectrum in the 5GHz
band. The FCC has recently enforced the 3.65-3.7GHz spectrum to be used in
a
shared mode; the upper 25MHz require a special coexistence protocol. Such a
protocol is defined for the WiMAX systems in 802.16 and this process might
be
lengthy.
An
additional trend affecting our business involves allowing TDD operation in
frequency bands allocated in the past for FDD operation. Generally, TDD
operation allows for lower cost equipment and is currently the preferred mode
of
operations, according to the adopted WiMAX Forum’s profiles. However, the
operation of TDD networks in proximity to FDD networks creates a mutual
interference hazard that may postpone customer decisions, impede network
deployment or require higher cost solutions to address such issues.
In
addition to regulation of available frequencies, our products must conform
to a
variety of national and international regulations that require compliance with
administrative and technical requirements as a condition to marketing devices
that emit radio frequency energy. These requirements were established, among
other things, to avoid interference among users of radio frequencies and to
permit the interconnection of equipment.
We
are
subject to export control laws and regulations with respect to all of our
products and technology. In addition, Israeli law requires us to obtain a
government license to engage in research and development, and export, of the
encryption technology incorporated in some of our products. We currently have
the required licenses to utilize the encryption technology in our
products.
C. ORGANIZATIONAL
STRUCTURE
The
following is a list of our significant subsidiaries, each of which is
wholly-owned:
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Alvarion,
Inc., incorporated under the laws of Delaware, United
States;
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Alvarion
Mobile, Inc., incorporated under the laws of Delaware, United States,
is a
wholly owned subsidiary of Alvarion
Inc.;
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interWAVE
Communications Inc., incorporated under the laws of Delaware, United
States, is a wholly owned subsidiary of Alvarion Mobile,
Inc.;
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Alvarion
UK LTD., incorporated under the laws of
England;
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Alvarion
SARL*, incorporated under the laws of
France;
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Alvarion
SRL, incorporated under the laws of
Romania;
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Alvarion
Asia Pacific Ltd., incorporated under the laws of Hong
Kong;
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Alvarion
do Brasil LTDA, incorporated under the laws of
Brazil;
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Alvarion
Uruguay SA, incorporated under the laws of
Uruguay;
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Alvarion
Japan KK, incorporated under the laws of
Japan;
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Alvarion
Israel (2003) Ltd., incorporated under the laws the State of
Israel;
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Alvarion
Spain, S.L., incorporated under the laws of
Spain;
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Tadipol-ECI
Sp.z o.o.,** incorporated under the laws of
Poland;
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Alvarion
Telsiz Sistemleri Ticaret A.Ş.**, incorporated under the laws of
Turkey;
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Alvarion
de Mexico S.A. de C.V., incorporated under the laws of
Mexico;
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interWAVE
Communications International SA, incorporated under the laws of
France;
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Alvarion
Philippines incorporated under the laws of
Philippines;
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Kermadec
Telecom B.V. incorporated under the laws of
Holland;
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Alvarion
South Africa (Pty) Ltd., incorporated under the laws of South
Africa;
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Alvarion
Italy SRL incorporated under the laws of
Italy;
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Alvarion
GmbH incorporated under the laws of Germany;
and
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Alvarion
Singapore PTE LTD., incorporated under the laws of
Singapore.
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*Alvarion
SARL is a wholly-owned subsidiary of Alvarion UK LTD.
**
Alvarion Telsiz Sistemleri Ticaret A. S. and Alvarion - Tadipol - ECI Sp.zoo
are
wholly owned subsidiaries of Kermadec Telecom B.V.
In
addition, we have representative offices in China, Italy and
Russia.
D. PROPERTY,
PLANTS AND EQUIPMENT
We
do not
own any real estate. As of December 31, 2007, we leased an aggregate of
approximately 270,000 square feet in Israel for annual lease payments (including
management fees) of approximately $4.1 million and incurred annual parking
expenses in connection with these leases of approximately $0.4 million. These
premises consist mainly of our corporate headquarters in Tel-Aviv, Israel,
and
two separate warehouses located in Israel as well as at our subcontractors’
facilities in Israel. We have been occupying our main premises since April
2001,
these premises serve as our corporate headquarters, as well as the site at
which
we conduct our main research and development activities and some quality
assurance, final assembly and testing operations. Our main lease expires in
the
year 2011. We also lease approximately 17,250 square feet of office facilities
in Mountain View, California, at an annual rent of approximately $0.2 million.
These premises serve as the corporate headquarters of our U.S. subsidiary,
Alvarion Inc, and as our principal sales and marketing office in North America.
In addition, we lease office space for the operation of our facilities in
France, Romania, China, Uruguay, Japan, Brazil, Mexico, Philippines, Poland,
Russia, Singapore, Italy, South-Africa and Spain.
We
believe that the facilities we currently lease are adequate for our current
requirements.
ITEM
4A. UNRESOLVED
STAFF
COMMENTS
Not
applicable.
ITEM
5. OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
The
following discussion of our financial condition and results of operations should
be read together with our consolidated financial statements and the related
notes included elsewhere in this annual report. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth in “Item 3—Key Information—Risk Factors.”
Overview
We
are a
leading provider of WiMAX and non-WiMAX wireless broadband systems. We supply
carriers, ISPs and private network operators with WiMAX and other wireless
broadband solutions. Our solutions are designed to cover the full range of
frequency bands with fixed, portable and mobile applications, to enable the
delivery of Personal Broadband services and Primary Broadband services such
as
business and residential broadband access, corporate VPNs, toll quality
telephony, mobile base station feeding, hotspot coverage extension, community
interconnection and public safety communications.
We
believe we will see demand in the consumer and business/government segments
for
bandwidth-intensive applications (video, data and voice) in the anticipated
mobile environment. Our vision is to deliver Personal Broadband networks, which
will combine broadband and mobility to subscribers
by being
at the forefront of exploiting the benefits of OPEN architecture characteristics
of WiMAX.
We
believe that one of our key challenges is to successfully manage the transition
from our non-WiMAX to WiMAX products and from one WiMAX solution to
another.
This
challenge also includes leveraging our experience and leadership in both
non-standard BWA and current WiMAX markets, combined with our brand strength,
broad customer base and innovative technology in order to play an important
role
in the WiMAX-based mobile broadband market as well. Other key challenges are
to
become a major player in the Personal Broadband equipment market and establish
our OPEN WiMAX strategy as a new strategy, which enables communication service
providers to choose the combination of vendors and partners that best fit their
specific requirements.
As
a
wireless broadband pioneer, we have been driving and delivering innovations
for
more than 10 years from core technology development to creating and promoting
industry standards. Leveraging our key roles in the IEEE and HiperMAN standards
committees and experience in deploying OFDM-based systems, we have been in
the
forefront of the WiMAX Forum™ in its focus on increasing the widespread adoption
of standards-based products in the wireless broadband market and leading the
entire industry to mobile WiMAX solutions.
Our
solutions are usually used in a point-to-multipoint architecture and address
a
wide scope of end-user profiles, from the consumers, residential and SOHO
markets, through SMEs and multi-tenant units/multi-dwelling units.
Our
products operate in licensed and license-free bands, ranging from 450 MHz to
28
GHz and comply with various industry standards. Our core technologies include
spread spectrum radio, linear radio, digital signal processing, modems, MAC,
IP-based mobile switches, compact mobile networks, networking protocols and
VLSI. We have intellectual property in these technologies.
On
August 1, 2001 we acquired Floware Wireless Communication Ltd. Upon the
closing of the acquisition, we changed our name from BreezeCOM Ltd. to Alvarion
Ltd. We have consolidated the results of Floware’s business in our financial
statements from August 1, 2001.
On
April
1, 2003, we acquired certain assets and assumed liabilities of InnoWave Ltd.
We
have consolidated the results of InnoWave’s business in our financial statements
from April 1, 2003.
On
December 9, 2004, we acquired, through a cash merger, interWAVE, a provider
of
compact mobile network equipment and services, which strengthened our know-how
in mobility and expanded our served market to include the mobile equipment
market. Most of interWAVE’s operations were reported under the CMU
business.
On
November 21, 2006, we sold substantially all of the assets and certain
liabilities related to our CMU business to LGC , a privately held U.S. company,
in
exchange for promissory notes and convertible notes of LGC.
In
September 2007, LGC converted our convertible notes into LGC shares and thus
we
became a shareholder of LGC. In November 2007, ADC acquired all of LGC shares
in
a cash transaction. The
CMU
business is classified as discontinued operations.
2007
Highlights
In
2007,
we continued to focus strategically on our main businesses, broadband wireless
access and WiMAX solutions and exceeded
our expectations regarding revenues and net income.
During
2007, our revenues
grew 30% over 2006 to $236.6 million primarily due to strong execution by our
team. Our BreezeMAX revenues reached $124 million.
This
revenue strength allowed us to continue to invest in our Open WiMAX initiatives,
remain profitable and cash flow positive, and to meet our objective of balancing
the need for investment with the need to remain profitable.
We
experienced strong growth from our Primary Broadband access business in emerging
markets, such as Central and Eastern Europe and Latin America, and in rural
areas of developed countries such as Western Europe. This wireless DSL market
is
and is expected to continue to be an important growing market for us, in
addition to Personal Broadband. Both Primary and Personal Broadband applications
will continue to be important strategic markets for us, and we expect to serve
both with our evolving IEEE 802.16e platform.
During
2007 we collected cash proceeds from the following sources: (i) our customers;
(ii) proceeds from the acquisition of LGC by ADC and; (iii) proceeds from an
agreement we reached with our former CMU customer to accelerate the payments
due
from such customer to us with respect to equipment sold up until the effective
date of the sale of the CMU to LGC in November 2006. As a result of all of
these
activities, we generated over
$20
million in cash, cash equivalents
and
marketable securities and decreased our DSOs to 48 days.
During
2007, we continued to grow mainly due to our existing customer base. In
addition, we were successful in the following areas:
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We
built an ecosystem with strategic
partners.
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We
continued converting operators from trials and smaller scale deployments
to larger scale commercial deployments.
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Our
4Motion™
solution achieved initial interoperability with numerous devices
using
embedded chipsets from third-party vendors (such as Intel).
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We
demonstrated the MIMO Matrix B, an essential element in the IEEE
802.16e
Wave 2 system compliance with the new Intel chip embedded into an
ultra-light laptop prototype. The end-result of this MIMO technology
is to
increase the throughput and capacity of a WiMAX network to support
high-speed services such as video and online
gaming.
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We
continued to develop relationships with strong local partners in
key
geographies and expanded
our already extensive network of distributors both geographically
and
within key vertical markets.
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We
believe that our achievements in 2007 will enable us to continue to improve
our
long-term performance and to meet our Broadband Wireless and WiMAX technical,
financial and strategic objectives.
In
the
past two years and
going
forward,
one of
our key challenges has been and will be
to
successfully manage the transition from our non-WiMAX to WiMAX products and
from
one WiMAX solution to the other. During 2007, we increased our revenues by
approximately 30% in comparison to 2006; although we experienced low revenue
growth of our non-WiMAX products (approximately 2% over 2006) due primarily
to
the continuing market transition to WiMAX-based products. This trend may
continue as customers may delay orders for our products until the release of
our
additional new WiMAX products.
In
addition, during 2007, we continued to increase our investments in our WiMAX
solutions, in particular mobile WiMAX products, and as a result, we increased
our overall operating expenses by approximately 25% while keeping our gross
margin level at approximately 50% of our revenues. We maintained the level
of
our gross margins mainly due to the
continued implementation of operational efficiency measures and cost reduction
programs, including improvement in manufacturing processes and in the
contractual terms with our subcontractors, due to the utilization of previously
written-off inventory, as well as the mix of products in our
revenues.
Periods
of economic slowdown or recession in the United States or other relevant regions
or countries or the public perception that these periods of economic slowdown
or
recession may occur, may reduce corporate and consumer spending and that may
create new challenges for us if these
general
economic conditions fail to improve or worsen.
We
became
profitable in 2007, as our net income amounted to $12.5 million compared with
a
net loss of $(40.8) million in 2006.
This net
income was primarily a result of our growth in revenue from $181.6 million
in
2006 to $236.6 million in 2007, together with an increase in our financial
and
other income from $3.8 million in 2006 to $14.7 million in 2007, and our income
from discontinued operations, which was $5.4 million, compared to a loss of
$(36.2) million in 2006, partially offset by the increase of our operating
expenses, which were $125.3 million in 2007, compared to $100.1 million in
2006.
Critical
Accounting Principles
Our
financial statements are prepared in accordance with generally accepted
accounting principles in the United States, and audited in accordance with
standards of the Public Company Accounting Oversight Board (United States).
A
discussion of the significant accounting policies that we follow in preparing
our financial statements is set forth in Note 2 to our consolidated financial
statements included in Part III of this annual report. In preparing our
financial statements, we must make estimates and assumptions as to certain
matters, including, for example, the amount of new materials and components
that
we will require to satisfy the demand for our products based on our sales
estimates and the period of time that will elapse before our products become
obsolete. While we endeavor diligently to assure that our estimates and
assumptions have a reasonable basis and reflect our best assessment as to the
future circumstances in which we anticipate, actual results may differ from
the
results estimated or assumed and the differences may be substantial as to
require subsequent write-offs, write-downs or other adjustments to past results
or current valuations.
The
following is a summary of certain critical principles, which have a substantial
impact upon our financial statements and which we believe are most important
to
keep in mind in assessing our financial condition and operating
results:
Discontinued
Operations.
On
November 21, 2006, we signed an agreement to sell substantially all of the
assets and assign certain liabilities related to the Cellular Mobile Unit
(“CMU”) reporting unit. At closing in 2006, we recognized such transaction as a
divestiture
of
operations, and therefore, the results of the CMU activities for all reported
periods were reclassified into one-line item in the statement of operations
below the results from continuing operations under "Income (loss) from
discontinued operations". The assets and liabilities related to the CMU as
at
December 31, 2006 were reclassified in our balance sheet as assets and
liabilities from discontinued operations. As of December 31, 2007 we had no
assets and liabilities from discontinued operations.
In
addition, the cash flow of the CMU was also disclosed separately in our
statements of cash flows for 2005, 2006 and 2007.
Revenue
Recognition.
We
generate revenues from selling our products indirectly through distributors
and
OEMs, as well as selling them directly to end users.
Revenues
are recognized in accordance with Staff Accounting Bulletin No. 104, “Revenue
Recognition in Financial Statements” and Emerging Issues Task Force (EITF) No.
00-21, “Revenue Arrangements with Multiple Deliverables” when the following
criteria are met: persuasive evidence of an arrangement exists, delivery has
occurred, the seller’s price to the buyer is fixed or determinable, no further
obligation exists and collection is reasonably assured.
We
generally do not grant a right of return on our products. However, we have
granted to certain distributors limited rights of return on unsold products.
Product revenues on shipments to these distributors are deferred until the
distributors resell our products to their customers, provided that all other
revenue recognition criteria are met.
In
cases
in which we are obligated to perform post delivery installation services,
revenues are recognized upon completion of the installation.
In
transactions,
where
a
customer’s contractual terms include a provision for customer acceptance,
revenues are recognized either when such acceptance has been obtained or the
acceptance provision has lapsed.
Accounts
Receivable.
We are
required to assess the collectability of our accounts receivable balances.
Generally, we do not require collateral; however, under certain circumstances
we
require letters of credit, other collateral, additional guarantees or advance
payments. A considerable amount of judgment is required in assessing the
ultimate realization of these receivables including, but not limited to, the
current credit-worthiness of each customer. We regularly review the amounts
due
and related allowance by considering factors, such as historical experience,
credit quality, age of the accounts receivable balances and current economic
conditions that may affect a customer’s ability to pay. For certain accounts
receivable balances, we are also covered by foreign trade risk insurance. To
date, we have not experienced material losses on the ongoing credit evaluations
of our customers. Should we consider it necessary to increase the level of
provision for doubtful accounts, required for a particular customer, then
additional charges will be recorded in the future.
Inventory
Valuation.
Our
policy for valuation of inventory and commitments to purchase inventory,
including the determination of obsolete or excess inventory, requires us to
perform a detailed assessment of inventory at each balance sheet date which
includes a review of, among other factors, an estimate of future demand for
products within specific time frames, valuation of existing inventory, as well
as product lifecycle and product development plans. The business environment
in
which we operate the wide range of products that we offer and the sales-cycles
we experience all contribute to the exercise of judgment relating to
maintaining, utilizing and writing-off inventory. The estimates of future demand
that we use in the valuation of inventory are the basis for our revenue
forecast, which is also consistent with our short-term manufacturing plan.
Inventory reserves are also provided to cover risks arising from non-moving
items. We write-down our inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. We may be required to record additional inventory write-downs if
actual market conditions are less favorable than those projected by our
management.
Note
2g
to our financial statements describes the write-offs and provisions that we
made
and recorded in 2005, 2006 and 2007 to reflect the decline from our expectations
in the value of inventory, which had become excessive, unmarketable or otherwise
obsolete or the inventory of new materials and components that we had purchased
or committed to purchase in anticipation of forecasted sales which we did not
consummate. In addition, changes in demand, which result in increased demand
for
our products, may lead to utilization of our previously written-off products.
Note 2g to our financial statements describes the effect of the utilization
of
the related products of our prior years’ written-off components, which are
reflected in our revenues without additional cost in the cost of sales in the
period the inventory was utilized.
If
there
were to be a sudden and significant decrease in demand for our products, or
if
there were a higher incidence of inventory obsolescence because of rapidly
changing technology and customer requirements, we could be required to increase
our inventory allowances and our gross margin could be adversely affected.
In
addition, if the demand for our products increases beyond our expectations
following a write-off of inventory, we may need to further utilize our
previously written-down inventory. Such utilization may contribute to our gross
margin in future periods. Inventory management remains an area of management
focus as we balance the need to maintain strategic inventory levels to ensure
competitive lead times against the risk of inventory obsolescence because of
rapidly changing technology and customer requirements.
Intangible
assets.
As a
result of the acquisition of interWAVE in 2004, InnoWave in 2003 and our merger
with Floware in 2001, our balance sheet as of December 31, 2007 and 2006
includes acquired intangible assets, such as goodwill and current technology,
which totaled approximately $58.7 million and $61.2 million, respectively.
In
the course of the analysis and valuation of intangible assets, we use financial
and other information, including financial projections and valuations provided
by third parties. Although we evaluate our intangible assets when there is
an
indication of impairment, our projections are based on the information available
at the respective valuation dates, and may differ from actual results. As a
result of the sale of substantially all of the assets and
the
assignment of certain liabilities
of the
CMU, the intangible assets related to the acquisition of interWAVE that were
allocated to the CMU activity in 2005, were classified in our balance sheet
as
assets from discontinued operations prior to its sale.
Goodwill.
In
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS
142”) goodwill acquired in a business combination that closes on or after July
1, 2001 is deemed to have indefinite life and will not be amortized. SFAS 142
requires goodwill to be tested for impairment on adoption and at least annually
thereafter or between annual tests in certain circumstances, and impaired,
rather than being amortized as previous accounting standards required. As of
December
31, 2007, we had total goodwill of $57.1 million on our balance sheet. Goodwill
is tested for impairment by comparing the fair value of the reporting unit
with
its carrying value. The fair value was determined based on our management’s
future operations projections, using discounted cash flows and market
approach
and
market multiples valuation methods. During 2006, before the sale of the CMU
business, we identified indications of impairment of goodwill of $23.4 million
related to this unit. This charge is included in the results of discontinued
operations. There was no indication of impairment related to our continuing
operations. In assessing the recoverability of our goodwill and other intangible
assets, we must make assumptions regarding the estimated future cash flows
and
other factors to determine the fair value of the respective assets. If these
estimates or their related assumptions change in the future, we may be required
to record impairment charges for these assets.
Warranties.
We
provide for the estimated cost of product warranties at the time the product
is
shipped. Our products sold are covered by a warranty for periods ranging from
one year to three years. We accrue a warranty reserve for estimated costs to
provide warranty services. Our estimate of costs to service the warranty
obligations is based on historical experience and expectation of future
conditions. We accrue for warranty costs as part of our cost of sales based
on
associated material costs and technical support labor costs. Material cost
is
primarily estimated based upon historical trends in the volume of product
returns within the warranty period and the cost to repair or replace the
equipment. Technical support labor cost is primarily estimated based upon
historical trends in the rate of customer calls and the cost to support the
customer calls within the warranty period.
To the
extent we experience increased warranty claim activity or increased costs
associated with servicing those claims, our warranty accrual will increase,
resulting in decreased gross profit.
Stock-Based
Compensation Expense. On
January 1, 2006, we adopted FASB Statement No. 123 (Revised 2004),
Share-Based Payment (“SFAS 123(R)”), which requires the measurement and
recognition of compensation expense for all share-based payment awards made
to
our employees and directors, including employee stock options, which are based
on estimated fair values. Stock-based compensation expense recognized under
SFAS
123(R) for 2006 and 2007 was $6.9 million and $7.4 million, respectively. For
fiscal 2005, stock-based compensation expense of $563,000 had been recognized
under previous accounting standards. See Note 2m to our Consolidated Financial
Statements for additional information.
Upon
adoption of SFAS 123(R), we began estimating the value of employee stock options
on the date of grant using a Black-Scholes model. Prior to the adoption of
SFAS
123(R), the value of each employee stock option was estimated on the date of
grant using the intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (“APB 25”) and
the Black-Scholes model for the purpose of the pro forma financial information
provided in the notes to the financial statement in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation" (“SFAS 123”).
The
determination of fair value of stock options awards on the date of grant is
affected by several factors including our stock price, our stock price
volatility, risk-free interest rate, exercise price, expected dividends and
employee stock option exercise behaviors. If such factors change and we employ
different assumptions in the application of SFAS 123(R) in future periods,
the
compensation expense that we record under SFAS 123(R) may differ significantly
from what we have recorded in the current period.
Deferred
Taxes. We
record
a valuation allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realized. While we have considered future
taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event we were to
determine that we would be able to realize our deferred tax assets in the future
in excess of our net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made. Our estimates
for estimated future tax rates could be adversely affected by earnings being
lower than anticipated in countries where we have different statutory rates,
changes in the valuation of our deferred tax assets or liabilities, or changes
in tax laws or interpretations thereof. In addition, we are subject to the
continuous examination of our tax returns by the local tax authorities in each
country that we have established corporations. We regularly assess the
likelihood of adverse outcomes resulting from these examinations to determine
the adequacy of our provision for deferred taxes. In June 2006, the FASB issued
FIN 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized under SFAS No. 109. FIN 48
prescribes a recognition threshold and measurement attribute for financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return and also provides guidance on various related matters
such
as de-recognition, interest and penalties, and disclosure. On January 1,
2007, we adopted FIN 48. The initial application of FIN 48 to our tax positions
had no effect on our Shareholders’ Equity.
Contingencies
and Other Accrued Expenses
We
are
from time to time involved in legal proceedings and other claims. We are
required to assess the likelihood of any adverse judgments or outcomes to these
matters, as well as potential ranges of probable losses. We have not made any
material changes in the accounting methodology used to establish our
self-insured liabilities during the past three fiscal years. A determination
of
the amount of reserves required, if any, for any contingencies and accruals
is
made after careful analysis of each individual issue. The required reserves
may
change due to future developments, such as a change in the settlement strategy
in dealing with any contingencies, which may result in higher net loss. If
actual results are not consistent with our assumptions and judgments, we may
be
exposed to gains or losses that could be material.
Results
of Operations
The
following tables present our total revenues attributed to the geographical
regions based on the location of our customers for the years ended
December 31, 2005, 2006 and 2007:
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
Total
|
|
|
|
Total
|
|
|
|
Total
|
|
|
|
|
|
revenues
|
|
Percentage
|
|
revenues
|
|
Percentage
|
|
revenues
|
|
Percentage
|
|
|
|
In
thousands
|
|
Of
sales
|
|
In
thousands
|
|
Of
sales
|
|
In
thousands
|
|
Of
sales
|
|
Israel
|
|
$
|
1,271
|
|
|
0.7%
|
|
$
|
863
|
|
|
0.5%
|
|
$
|
861
|
|
|
0.4%
|
|
North
America (including the United States and Canada)
|
|
|
29,564
|
|
|
16.7%
|
|
|
25,047
|
|
|
13.8%
|
|
|
32,767
|
|
|
13.9%
|
|
Europe
(excluding Russia, Romania, Italy and Spain)(1)
|
|
|
40,341
|
|
|
22.8%
|
|
|
39,903
|
|
|
22.0%
|
|
|
57,985
|
|
|
24.5%
|
|
Russia
|
|
|
11,278
|
|
|
6.4%
|
|
|
9,517
|
|
|
5.2%
|
|
|
10,277
|
|
|
4.3%
|
|
Romania
|
|
|
6,628
|
|
|
3.7%
|
|
|
13,438
|
|
|
7.4%
|
|
|
10,114
|
|
|
4.3%
|
|
Italy
|
|
|
6,565
|
|
|
3.7%
|
|
|
10,771
|
|
|
5.9%
|
|
|
13,269
|
|
|
5.6%
|
|
Spain
|
|
|
10,678
|
|
|
6.0%
|
|
|
14,563
|
|
|
8.0%
|
|
|
13,767
|
|
|
5.8%
|
|
Africa
|
|
|
25,924
|
|
|
14.7%
|
|
|
22,904
|
|
|
12.6%
|
|
|
26,609
|
|
|
11.3%
|
|
Asia
|
|
|
11,732
|
|
|
6.6%
|
|
|
13,731
|
|
|
7.6%
|
|
|
19,942
|
|
|
8.4%
|
|
Latin
America (excluding Mexico)(1)
|
|
|
18,156
|
|
|
10.3%
|
|
|
22,834
|
|
|
12.6%
|
|
|
42,325
|
|
|
17.9%
|
|
Mexico
|
|
|
14,790
|
|
|
8.4%
|
|
|
8,023
|
|
|
4.4%
|
|
|
8,657
|
|
|
3.6%
|
|
|
|
$
|
176,927
|
|
|
100.0%
|
|
$
|
181,594
|
|
|
100%
|
|
$
|
236,573
|
|
|
100%
|
|
(1)
We
have listed Russia, Romania, Italy, Spain and Mexico separately within this
table because they were each above 5% of our total revenues during at least
one
of the last 3 years. The following tables set forth, for the periods indicated,
selected items from our consolidated statement of operations in U.S. dollars
in
thousands and as a percentage of total sales:
|
|
Year
Ended December 31,
|
|
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(In
thousands)
|
|
Sales
|
|
$
|
176,927
|
|
$
|
181,594
|
|
$
|
236,573
|
|
Cost
of sales
|
|
|
85,817
|
|
|
80,410
|
|
|
114,099
|
|
Write-off
of excess inventory and provision for inventory purchase
commitments
|
|
|
7,338
|
|
|
9,472
|
|
|
4,762
|
|
Gross
profit
|
|
|
83,772
|
|
|
|