Telsima, WiMAX equipment vendor, sold for a pittance
Telsima, a WiMAX equipment vendor, has been sold at a fire sale price: $12 million. The buyer is Harris Stratex based in North Carolina. The news comes as a shock (but not to me) because Telsima has raised $75 million from venture capital firms (including Intel Capital, source of funding for a number of WiMAX operators — let’s see how long they last) and $25 million in debt. Om Malik laments that Telsima’s impressive customer list did not save it in the end:
“The sad part of the Telsima story is that the company is getting sold at a time when it is beginning to get some traction. Not only does it have one of the best and most complete WiMAX product portfolios, it has also signed up customers such as Neotel of South Africa, Tata Communications of India and is in the running for a $1 billion WiMAX network being built by Indian telecom carrier BSNL. Many Telsima-powered WiMAX networks were being put to work in Eastern Europe.”
As I mentioned in my previous post on WiMAX operators (More WiMAX operators to launch service this year: so what?), the most important measure of a company’s success isn’t customer wins or numbers of networks launched, but how much money the company is actually getting from its customers (and what its costs are). Although Telsima may have signed up many operators in developing countries, people should ask: What are the customers paying for the equipment? What are the payment terms? What are Telsima’s costs? How has the financial crisis affected the deals it has already concluded with those operators? Operators in developing countries cannot charge a lot of money for WiMAX service simply because people who live in developing countries cannot afford to pay so much for broadband. As for developed countries where people have a lot of choice (DSL, cable, fiber), WiMAX has an even tougher time, made worse by the financial crisis (people are cutting back on spending).
Om states in his article, when Telsima launched four years ago, “WiMAX was seen as a disruptive technology that would sweep the planet.” But what exactly was the basis of that view among analysts? From the very beginning, WiMAX has always faced daunting challenges: different countries allocated different frequencies for WiMAX service; it would take time for device manufacturers to embed WiMAX chips into their products (despite Intel’s wish that everyone do it right away); the operators would have to enter into roaming agreements.
The problem is that in making predictions about WiMAX’s prospects, analysts forgot to look from the end user’s perspective. Just because a technology is being pushed by a powerful vendor such as Intel (who put money into equipment vendors AND WiMAX operators) doesn’t mean it’s a slam dunk. Even the most expensive Intel PR campaigns didn’t help.
Meanwhile, Arnon Kohavi (founder of WeFi) has posted a comment to the Om Malik piece that puts the Telsima fire sale in perspective:
I don’t think Harris is getting a good deal at all! Alvarion, the “market leader” is traded at $180M with $140M in cash – an enterprise value of $40M, and Redline is traded in Canada for less than Molson bottle of beer. What about Aperto and Soma that raised in excess of $100M each? The only “successful” companies in these space were the ones who took advantage of a high stock market earlier to sell to a larger company (and Navini did not get such a good price).
WiMax will remain a niche product like fixed wireless before. Niche products that sell in Africa and other parts of the developing world will never receive high PE from investors, and eventually these products will only compete based on price. It is a crowded niche space – not a good place to be!
While I usually don’t give VCs too much credit for being intelligent, they were smart enough to get out of this market.
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