Novatel Wireless Sinks Despite Vodafone Deal

Novatel Wireless (NVTL Quote) sank 15% in late trading Thursday even after rolling out a big supply agreement with British wireless giant Vodafone (VOD Quote).

The San Diego-based telecom-gear shop said it won a contract to supply Vodafone with its Merlin 3G Universal Mobile Telecommunications System wireless PC card modems for high-speed access to Vodafone's 3G network. Terms weren't disclosed.

The company also posted earnings for its third quarter ended Sept. 30. Novatel earned $4.9 million, or 16 cents a share, in the latest quarter, reversing the year-ago loss of $1.8 million, or 22 cents a share. Revenue surged to $31 million from $8 million a year earlier.

"Gross margins increased to a record 33.2% and operating expenses decreased to 18.1% as a percentage of sales," said finance chief Dan Halvorson. "Moving forward, we expect to continue building our R&D and sales and marketing effort to support our rapid growth. Operating margins of 15.2% and net income of $4.9 million were the highest in the company's history and we currently expect to maintain operating margins at these levels. At September 30, 2004 our cash balance including investments was $89.8 million, reflecting impressive positive cash flow from operations of $10.8 million for the third quarter of 2004."

Still, shares sagged $3.70 to $20.80 in postclose action.