alvarionceo

Tzvika Friedman, Ceo, Alvarion

WiMAX Vision talks to Alvarion CEO, Tzvika Friedman, about strategy and growth prospects for the Israel-headquartered WiMAX RAN supplier. Hear Tzvika’s keynote speech at WiMAX Forum Global Congress 2-3 June 2009 – brochure available for download at www.wimax-vision.com/global

WiMAX Vision (WV): When Nortel, your former WiMAX partner, announced it was going into Chapter 11 in mid-January, you had to write off $2.4m in sales for 4Q 2008. How do you feel Nortel has behaved towards Alvarion?

Tzvika Friedman (TF): I am very unhappy with the way Nortel behaved with the bankruptcy. They owe me money and they are not paying it. They are hiding behind bankruptcy rules. We intend to get this money any way we can. Very simply, we shipped to them [Nortel] and they shipped to customers and collected the money. They can pay the money. It is not as if someone owes them and they owe us. They are using the Chapter 11 bankruptcy [rules] to their maximum advantage. Naturally, that is something I don’t like.

WV: How have you had to adjust following the subsequent break-up of your partnership with Nortel?

TF: In December 2008 we announced cuts that would give us about $15m of savings [in 2009], most of which were taken from opex and some of it from the COQ [the cost of equipment]. The Nortel funding [for 2009] is about the equivalent of all the opex savings, so we needed to make those savings again because by not having [the Nortel] money could take Alvarion into losses. The only way to deal with this immediately was to cut salaries by ten percent [excluding the lower paid] to fill most of the hole left by Nortel.”

WV: What are the growth prospects for WiMAX during 2009?

TF: The market as a whole will grow because there are several large projects moving into implementation phase, including Clearwire in the US and UQ in Japan. For Alvarion, which is currently not involved in these two projects, it’s difficult to say what the growth prospects are, but we do have a platform in place that’s capable of supporting 15 percent revenue growth over 2008. If it grows more than that, we’ll have to make additional investment.

WV: How do you respond to the view that by far the biggest opportunity for WiMAX lies in fixed and portable applications rather than mobility?

TF: I see the market developing on three axes. One will be the mega projects, such as Clearwire and UQ, which will create a large ecosystem of devices and CPE. Second, there will be one or two WiMAX licences almost in every country and some will do personal broadband once the ecosystem is there. This is similar to the way CDMA developed, and which happened after GSM had arrived. The third axis will be fixed and nomadic WiMAX operators supporting notebooks and then moving to mobility. Mobility is the natural migration path, so you will see a lot more WiMAX mobility in two years’ time.

WV: How does Alcatel-Lucent’s decision to stop WiMAX R&D investment for mobility affect the WiMAX industry in general and Alvarion in particular?

TF: For the industry, I’m not sure it’s so positive as people can interpret it in a negative way. But companies leaving a technology after a few years is natural. When WiMAX started, everyone announced they were going in, so some of the big players are bound to leave. Look at the DSL market, where lots of companies were involved to begin with. Now only Alcatel-Lucent, NSN and Huawei are still there. Ericsson, Nokia and Nortel all left the market. WiMAX has still got Samsung, Motorola, Huawei, NSN, Alcatel-Lucent [for fixed applications], as well as Alvarion. And two or three years down the road from the start of a new technology, you can also get one or two new players that are able to establish themselves. Nokia did it with GSM, Qualcomm with CDMA, and Ciena with WDM. And yes, I would say Alcatel-Lucent’s decision on mobile WiMAX is good for Alvarion

WV: How has the economic downturn affected Alvarion?

TF: Our strategy is more or less the same. What has changed as a result of the financial crisis is that we are much more focused on whom we sell to in the sense of checking they have the finance to go out and do the project. One of the reasons we think operators should choose us is because we are totally committed to WiMAX. We are not going to cut our investment, we have the finance, and we are here to stay.

WV: What is your attitude towards vendor financing?

TF: We don’t have an issue with vendor financing, the issue we have is with the risk. If we know there is no risk, we can easily arrange it, either from our own funding or from the relevant banks. Generally, though, we don’t do it.

WV: What about revenue-sharing agreements with operators?

TF: We don’t do revenue sharing today but we are very open to what we call the managed services approach where we bill for capacity used rather than for the equipment. Revenue from managed services, however, is almost zero. This is because, in most cases, once we go into detail about the WiMAX business case, the customer decides against managed services. They become more confident in the business case when they see we are interested.

WV: Will you be cutting R&D investment this year?

TF: R&D cuts were not in the cost-cutting measures we announced last year. R&D was around $60m last year and should be about the same this year as the dollar/shekel exchange rate goes a bit in our favour, which is around 20 percent of revenue. Hopefully that percentage will come down as we grow revenue. Our long-term R&D target is 15 percent of revenue, which doesn’t mean of course the R&D level will necessarily go down. We’ve also moved some of our R&D operation to Romania, which enables us to get the same level of R&D but at a lower cost. Out of some 500 R&D engineers around 130 are in Romania. We do with our [WiMAX] R&D about what you would say Samsung, Motorola or Alcatel-Lucent would do, but probably for about half or one third of the cost. We’ve also got a lot of experience in broadband wireless, which helps us to make fewer mistakes and be more efficient.

WV: In terms of achieving interoperability with other vendors’ WiMAX kit, how satisfied are you?

TF: Our open architecture can work with ASN Gateways from Cisco, Hitachi, Harris Stratex, Nortel and Bridgewater. But there are still interoperability problems with Motorola and Samsung, because they don’t use profile C [which uses open standards]. I think the operators will push them to open up eventually, though.