DragonWave drops Q2 revenue forecast, job cuts on the way

Citing an “unexpected problem” with the rollout of a new product to a carrier in India, Kanata-based wireless technology firm DragonWave said Tuesday its second-quarter earnings will be lower than originally forecast.

“The problem has been isolated and corrective actions are being implemented,” the company said in a statement. “The deployment is time sensitive and has been halted. We are developing a plan to manage the cash flow impact and also working with the customer on the path forward.”

DragonWave (TSX: DWI) had predicted sales in the three-month period ended July 31 would grow 30 per cent to 60 per cent over the first-quarter total of $26.3 million US. But on Tuesday CEO Peter Allen said the final tally would likely be at the lower end of that range, “given lower revenue than expected from India.”

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Mr. Allen added that product rollouts to its first major Indian customer, Reliance Jio, are “proceeding vigorously.” The Indian market now accounts for about a quarter of the firm’s total revenues.

Mr. Allen said the company’s overall strategy continues to be the “drive to return to profitability.”

To that end, he said, DragonWave has a cost reduction plan which will include “staff reduction and other measures.” 

The company expects the plan will result in an $8-million reduction in annual operating expenses.

“The plan is in place and we will be executing it shortly,” Mr. Allen said. 

While he said more details will come in DragonWave’s next quarterly report, Mr. Allen did say a product program will be delayed as part of the cost reduction and overall headcount associated with that delay will be part of the reduction.

Meanwhile, DragonWave said it had reached an agreement with Finnish telecom giant Nokia to help stem declining sales in that channel, including a new deal for support and maintenance services.

Nokia announced plans earlier this year to buy ailing French telecom firm Alcatel-Lucent, which makes microwave technology that competes with DragonWave, in a deal that is expected to be approved by mid-2016. How that acquisition will impact DragonWave’s relationship with Nokia, its largest customer, is still unclear.

Mr. Allen said Tuesday he is confident the partnership will remain strong.

“I’m very grateful for the support that Nokia has provided,” he told investors in a conference call. “They are an important part of our business currently, and I hope now to turn the discussion with them to the strategic fit of our businesses with the new Nokia as they move forward with their acquisition of Alcatel-Lucent.”

DragonWave shares were trading at 34 cents on the Toronto Stock Exchange and 26 cents on the Nasdaq by late afternoon – down significantly from their 52-week high of $1.52 on the Nasdaq. 

The company said Tuesday it has applied for a 180-day extension to meet the minimum requirements of a Nasdaq listing, which include a share price greater than $1 for a specific period. If the extension is granted and DragonWave still can’t meet the criteria, it will required to implement a reverse stock split in which several shares are combined into one.

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