Powerwave Feels Asia's Pain

By P.J. HUFFSTUTTER

Jan. 16, 1998 12 AM PT

TIMES STAFF WRITER

IRVINE —

Investors jittery over the Asian economic turmoil sent Powerwave Technologies Inc.’s stock plunging 25% Thursday after the company said it expects customers to postpone some orders in its largest market, South Korea.

Underscoring the dangers of relying heavily on a single geographical area in the global economy, Powerwave chief executive Bruce Edwards said customers might delay or cancel their orders if market conditions within South Korea remain troubled.

The South Korean market accounted for 83% of the company’s total revenues in 1997, and three of Powerwave’s largest customers are based there. The company makes power amplifiers used in wireless telephone networks.

“Anyone involved in business in Korea right now has got to be feeling the effect,” Edwards said.

The stock sank to a record low Thursday, dropping $3.56 a share to $10.44, in heavy trading on the Nasdaq market. More than 5.4 million shares changed hands, 25 times the average daily volume over the last three months.

“What’s happening with Powerwave right now is absolutely typical of this industry,” said Tony Robertson, an analyst with BancAmerica Robertson Stephens. “This is an incredibly volatile field, because very few suppliers handle most of the [digital] and cellular phone market.”

Last year, the Korean currency, the won, lost half its value, making U.S. goods more expensive. That has meant trouble for some suppliers that have large operations in Asia, as well as several manufacturers within the portable phone industry that either have offices or significant business ties to the area.

In the last three months, many of the big portable phone manufacturers and suppliers have also felt a pinch from the stock market. Motorola Inc. shares dropped about 17%, Nokia Corp. fell about 18% and Ericsson stumbled more than 15%.

Indeed, Edwards noted that Powerwave has been slowly expanding into related technologies and suppliers in other regions, specifically North and South America, as well as Europe. But South Korea will remain the company’s dominant market for the time being, Edwards said.

Like many other technology issues, Powerwave became a Wall Street darling after its initial public offering in 1966, when its stock sold at $12 a share.

Powerwave capitalized on its reputation as a fast-growing company that had found a solid niche market.

Last July, the firm made a secondary stock offering of 3.25 million shares, giving some of Powerwave’s key executives, employees and financial backers an opportunity to cash in on the firm’s growth. The stock sold for $22 a share.

The company was hot. Its staff grabbed awards from technology and accounting organizations, which honored the wireless firm for its innovation and expansive growth.

In October, Powerwave stock jumped to $48.50 a share.

But as the Asian markets continued to fluctuate, Powerwave’s share price began to drop amid ongoing concerns about the firm’s large exposure in South Korea.

“Fear has taken over a lot of investors,” said analyst Albert Lin of Soundview Financial Group.

Even a strong earnings report failed to impress Wall Street.

Late Wednesday, the company announced that earnings and sales more than doubled in the fourth quarter ended Dec. 28.

Net income for the three months climbed to $5.3 million, or 29 cents a share, from $2.2 million, or 15 cents a share, a year earlier. Revenues surged to $37.8 million from $16.7 million.

Analysts had predicted that the company’s fourth-quarter earnings would reach somewhere between 25 and 28 cents a share.

Despite the hefty increases, three analysts downgraded their recommendations on Wednesday.

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Problems at Powerwave

Powerwave Technologies stock tumbled Thursday on news that South Korean economic woes could affect sales. More than 80% of Powerwave’s 1997 sales were to South Korea. Details on the firm and its financial health:

Powerwave Profile

Headquarters: Irvine

Chairman: Alfonse G. Cordero

President/CEO: Bruce C. Edwards

Business: Wireless communications

Employees: 305

1997 sales: $119.7 million

Status: Public

Exchange: Nasdaq

Quarterly Sales, Net Income in millions

Total sales

4th quarter 1997: $37.8