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Novatel to Restructure Business

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Novatel Wireless Inc. has decided to restructure its businesses. Management stated that the company is witnessing growing overlap of operations in its Mobile Computing and M2M business segments.

The proposed restructuring will streamline the research and development costs and consolidate manufacturing process of these two lines of operations. Novatel’s aim is to achieve long-term profitability by capitalizing on synergies in its target markets.

The restructuring process will reduce the total headcount by approximately 75 to 80. At the end of the second quarter of 2013, Novatel had a total workforce of 403. The business overhaul process will be completed by the mid or end of Oct. 2013. 

Novatel will incur a pre-tax restructuring charge of $3.2 - $3.4 million predominantly in the ensuing third quarter of 2013. On the other hand, the restructuring process is expected to result in a pre-tax savings of $10 - $11 million per annum from the fourth quarter of 2013.

Novatel currently serves three large nationwide U.S. wireless operators, namely,  Verizon Communications Inc. (VZ - Free Report) , AT&T Inc. (T - Free Report) and Sprint Corp. (S - Free Report) . Verizon will soon launch MiFi 4620 LE with an extended battery pack. AT&T is using the MiFi 2 products.

Recently, Novatel introduced MiFi 500 LTE with Sprint. Management reaffirms that its revenue for the ensuing third quarter of 2013 will be in the range of $90 million - $100 million.

We anticipate increasing competition for Novatel’s MiFi product line. Several latest versions of smartphones have inbuilt WiFi capability. Low-cost Asian manufacturers have already launched their own version of intelligent mobile hot spots creating competitive pressure on the company. Novatel currently has a Zacks Rank #3 (Hold).

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