Mobile Hot Spots Cool Down

Novatel had been rolling until then. Its revolutionary MiFi -- the
pocket-sized hot spot that can provide online connectivity for multiple
products at the same time -- is arguably one of this year's coolest
tech toys.

Sprint Nextel (NYSE: S) and Verizon (NYSE: VZ)
have been marketing the MiFi aggressively, because it gives consumers
more bang for their mobile broadband buck than USB modems sold by
Novatel and Sierra Wireless (Nasdaq: SWIR), which are limited to a single user and require a laptop to get going.

It's not just a stateside phenomenon. Wireless carriers in
Singapore, Mexico, and Canada have also teamed up with Novatel to offer
the MiFi.

If this sounds like a recipe for growth, one sentence in the company's quarterly report was enough to crash the party.

"Currently, we expect fourth quarter MiFi sales to be similar to
third quarter levels as improving sell through catches up to initial
stocking orders," CEO Peter Leparulo notes.

Flat sales during the holiday quarter? Carriers ordering more mobile hot spots than they were able to sell? That's not pretty.

Novatel's third quarter itself was great. Revenue climbed 20% to
$94.3 million. A profit of $0.20 a share was double what analysts were
expecting. However, the company's fourth-quarter projections of $0.04
to $0.12 a share in earnings on $85 million to $95 million in revenue
imply a drop on the bottom line compared with the third quarter, and
the high probability of a top-line decline.

The pros don't like it, and they're paid to publicly look out even
further than Novatel. A week ago, Wall Street figured that Novatel
would earn $0.39 a share next year. Now that has been revised to net
income of $0.31 a share.

The good news for Novatel is that its balance sheet is flush with
$5.55 a share in cash and marketable securities. Back that out, and
Novatel is trading at an earnings multiple of around 10 for next year.
A few more foreign MiFi deals would help. It also wouldn't hurt if
Sprint and Verizon Wireless become more aggressive with their mobile
hot spot pricing plans to reach a larger audience.

As a mobile broadband customer for four years -- and a Novatel
shareholder for two months -- I'm not losing faith. I know that the one
thing keeping me from a MiFi is that I have another five months on my
two-year USB mobile broadband contract. Others are in my boat.

You see this all of the time with Apple (Nasdaq: AAPL), Research In Motion (Nasdaq: RIMM), and Palm (Nasdaq: PALM).
They roll out a sleek new smartphone, but prospective owners have to
bide their time as they work their way through their two-year wireless
commitments. The sales eventually trickle in, and I can't imagine folks
on old-school USB modems or dinosaur-school PCMCIA broadband cards not
upgrading to a MiFi when their contracts come up.

This is a great time to warm up to Novatel. Between the cash
mattress and misunderstood weekend sell-off, it's positioned well to be
a hot-spot hot spot.

© 2009 UCLICK L.L.C.