The largest U.S. wireless phone company helped lift the shares of Bridgewater Systems Corp., with news it had agreed to buy more of the Ottawa firm's software for managing customers.
Verizon Wireless's agreement to purchase $18.8-million (U.S.) worth of additional orders, on top of the initial one for about $30-million, gave analysts and investors confidence that Bridgewater would exceed initial sales and profit forecasts next year. In addition, the firm unveiled yesterday its suite of software to run on next-generation wireless networks, potentially setting Bridgewater up for a wave of new orders over the next several years.
The deal
Bridgewater said Friday that it had won an additional contract from Verizon Wireless to deploy its WideSpan systems, which help phone companies manage customer information and reduce their own operating costs. Bridgewater said revenue from the deal is not expected to be booked this year.
The stock
Bridgewater shares reacted by hitting a new all-time high yesterday. They jumped more than 15 per cent, adding $1.05 to close at $7.89 on the Toronto Stock Exchange. The stock had already rocketed 174 per cent this year, boosted by a fight in the boardroom that brought in an activist New York hedge fund manager.
The technology
Yesterday, the company announced that it was planning to test new software with some phone companies for their next-generation networks, built on a standard known as Long Term Evolution (LTE). Most of the world's major carriers are expected to shift to LTE within the next few years, led by Verizon, which is expected to roll out the technology in 2010. LTE networks boast speeds as much as 10 times faster than today's best offerings.
"It's a market in its infancy," said David Sharpley, senior vice-president of marketing and product management for Bridgewater. The company already sells products for another next-generation wireless standard, known as WiMax, and it is hoping that its early success with WiMax will help it sell LTE-related services.
The company expects to continue to benefit from the rapid growth in mobile data usage because the trend is forcing the phone companies to invest in technology to better manage both customer access and network resources.
The risk
Bridgewater has a healthy growth rate but still lacks sufficient global scale to secure its place in the rapidly changing world of telecom. Nearly two years after going public, it remains a tiny player in the world of goliath telecom equipment suppliers.
The company posted sales of $44.2-million (Canadian) in 2008, up 13 per cent from the previous year. The challenge for the company is to build its product and customer bases fast enough that it doesn't get squeezed out by bigger, better-financed players.
Sweden's Telefon AB LM Ericsson, for example, which just acquired the wireless assets of Nortel Networks Corp., is one of Bridgewater's competitors. Larger rivals have a more widely diversified set of products and services that ensure they have the resources to keep investing in their technology.
Mr. Sharpley says his company's relatively low 2008 growth rate occurred in an unusually tough environment and that 2009 results give a more accurate indication of Bridgewater's future. Revenue grew 48 per cent in the first six months of the year, compared with the comparable period in 2008. Bridgewater also continues to look at possible acquisitions and is building out its international operations, he said.
The analysis
Kris Thompson, of National Bank Financial Inc., expects the new revenue from Verizon will be split between 2010 and 2011 and that the company will win similar-sized contracts from the carrier next year.
Mr. Thompson raised his target price on the stock to $11 from $8, on the back of anticipated stronger sales and profit. He increased his revenue target for 2010 to $81-million from $71-million and his share profit estimate to 58 cents from 46 cents.
Thanos Moschopoulos, of BMO Nesbitt Burns Inc., also raised his target, to $9 from $8.50, noting that between the Verizon deal and an earlier licensing agreement with Alcatel-Lucent, more than 50 per cent of business forecast for 2010 is already in backlog.
What Bridgewater does
Bridgewater technology helps phone companies manage customer accounts by performing tasks such as authorizing and authenticating access to networks. It also personalizes services like mobile commerce and social networking. The company's offerings give carriers a unified view of their customers' details, which includes billing profiles, usage patterns and types of handsets on the network. The result is that telecom companies can launch services faster and reduce their operating costs.
*****
Bridgewater Systems
(BWC-TSX)
Yesterday's close $7.89, up $1.05
| Revenue | Profit | |
| 2008 | $44.2-million | $2.8-million |
| 2007 | $39.2-million | $2.7-million |
SOURCE: THOMSON DATASTREAM
© The Globe and Mail
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