Skip to main content

Peter Allen, CEO of DragonWave in Ottawa May 7, 2010.

Blair Gable/The Globe and Mail

You know there's sufficient buzz about a burgeoning Canadian company when the investment banks start circling. Eager to eventually win investment banking business, the dealers initiate research coverage to signal to management that they've been there from the early days.

This very scenario is currently playing out with Ottawa-based DragonWave Inc., a tech infrastructure company with a market value of just $145-million. Although profits have yet to materialize, there is hope that DragonWave will make a major global mark, ultimately offering up juicy banking fees and create another Canadian tech success story in the process.

The trouble is DragonWave still hasn't proved that it's worth the attention. Since the start of 2011 the company's had a rough go, and its share haves slid to $2.47 from roughly $8.50. Lately there's been hype, stemming from a major Indian contract, but that still doesn't offer any long-term certainty.

Story continues below advertisement

DragonWave's game plan is to connect cellular towers to the Internet using special wireless equipment that is supposed to be better than fibre optic cables. Cell providers are experiencing serious surges in data usage, and DragonWave's business model is tied directly to this growth.

For the most part, investors and analysts understand this appeal; fibre optic cables can't run everywhere. And in May the company announced a major purchase order from Reliance Jo Infocomm Ltd to help build out their 4G/LTE network in India. The stock popped on the news, and has more than double dsince.

But nobody seems to be able to answer this crucial question: Where does DragonWave go from here?

"The destination is clear but the path and timeframe of the journey is not yet certain," Canaccord Genuity analyst Robert Young wrote in a research note.

Even though India looks promising – the hope is that DragonWave will now secure more contracts there – the company still relies heavily on revenues from its acquisition of Nokia Siemens Networks' microwave transport business, and that stream has had hiccups.

"We estimate the Nokia channel needs to grow back to [approximately] $30-million per quarter and gross margin of 20 per cent-plus for DragonWave to have a shot at break-even," Raymond James analyst Steven Li wrote in a report. The company reported negative earnings of $4.4-million before interest, taxes, depreciation and amortization this week.

No one can forget about the company's cash struggle, either. As Chris Umiastowski wrote for the Globe's Strategy Lab in May, there are constant questions about DragonWave's ability to fund its operations because its cash pile keeps falling. By the end of next quarter analysts expect the company will only have $12-million to $13-million in cash on hand.

Story continues below advertisement

That's bad news for investors, but good for the investment banks, because it means DragonWave may need to raise money, or borrow some, soon. On a conference call this week management was asked about its financing options and the reply didn't shut the door: "We'll just keep all our options open in that vein."

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter
To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies