We downgrade our recommendation for Novatel Wireless (NVTL) to Underperform following its second quarter 2009 financial results, well below the Zacks Consensus Estimates. Novatel is facing intensifying competition for its legacy embedded solutions products that is expected to result in overall lower ASP and lower gross margin.
Although the company has developed a niche for its MiFi mobile intelligent hot spot, we foresee increased competition from the latest version of smartphones with in-build WiFi capabilities. Additionally, Novatel is suffering from huge customer concentration risk. The company has yet to launch any products for the lucrative next-generation wireless networks.
Novatel has provided a tepid financial outlook. We do not find any immediate growth catalyst for the company, and believe Novatel will incur loss for full-year 2010.