Having digested and integrated a wave of acquisitions to broaden its product lineup and make it an even stronger force in the wireless world, Powerwave Technologies is now eyeing long-term future growth. Keith Regan learns how operational excellence, a careful supplier strategy and low-cost procurement techniques provide a solid foundation for the company to have a major hand in the wireless revolution that’s still to come.
Since it was founded in 1985, Powerwave Technologies has evolved and changed dramatically along with the wireless industry itself. Originally a provider solely of power amplifiers for analog land mobile radio wireless networks and first-generation cellular systems, Powerwave executed an aggressive diversification strategy that saw it acquire a host of firms and technologies that in turn expanded the scope and breadth of the company’s product offerings.
From the 1999 purchase of Hewlett-Packard’s radio frequency amplifier business to the 2004 acquisition of LGP Allgon and the 2006 purchase of filtering product lines from Filtronic plc, Powerwave impressively grew its footprint and its reach. Purchases such as that of UK-based Toracomm Ltd. helped provide it with intellectual property in the radio frequency, digital signal processing, system design and system simulation realms, while the 2005 pickup of Kaval Wireless of Ontario, Canada, helped make it a major player in the in-building wireless coverage space, which today is seen as a booming part of the market.
The buying spree left Powerwave with a much larger revenue base—and a product array that made it a favored one-stop shop for its network carrier customers. But it also left the company facing a sizable integration challenge that spanned the globe, according to chief operating officer Marvin MaGee, who has been with Powerwave for three and a half years and in the technology industry for more than two decades.
“There was a lot of demand from our customers for more solutions, so we used our amplifier strength as a platform to acquire antenna solutions, filtering solutions, coverage solutions, tower-mounted amplifiers and even software solutions,” MaGee says. “The strategy has worked extremely well in terms of enabling us to provide a one-stop shop for operators and one of the most complete and well-integrated and consistent product and service lines that network operators could use.”
The strategy helped grow sales dramatically during the early part of the last decade, and starting in 2007, Powerwave, which is headquartered in Santa Ana, California, sought to accelerate the process of aligning culture and management teams and then drive a consistent supply chain and supplier strategy to create a single, simplified platform. Back-end systems were attacked, with a common IT platform that used standard applications suites from Oracle, PeopleSoft, Microsoft and Agile, among others, and helped support a single strategy around everything from procurement and financial tracking to human resources.
“As we approached consolidation, we kept in mind the business strategy we were trying to accomplish with each acquisition,” MaGee comments. “There is always a larger business reason for it. There is the top-level value proposition around acquiring products and technology and diversifying a product line, but also a subset of skills that a company or entity brings to your operations. You may buy a company that makes filter products, but behind those products lie technical competence and market knowledge that are really the core of the competitive advantage they bring. You need to go about integrating in a way that protects that intellectual property and that brain power that made those companies acquisition targets in the first place.”
Cost-conscious sourcing strategy
A major part of the integration strategy was to align the supply chain to take advantage of low-cost sourcing as much as possible. Engineering is largely concentrated in India, for instance, and suppliers are located around the world based on both quality and cost considerations.
“The site selections we consolidated to were guided to a significant degree by performance capability,” notes MaGee. “A big part of it from the production perspective is the supply chain. We wanted to remain close to the customers we were gaining as a result of the acquisitions and keep those eyes and ears but also look at how we could gain a competitive advantage on the cost side as well.”
The buying spree made it necessary to consolidate the supply chain, and through an extensive supplier selection process the supply chain was revamped to source from low-cost regions of the world whenever possible. “We wanted to protect the quality and value proposition we offer while also driving for low-cost execution capability at every turn,” MaGee says. “We feel very comfortable with the operating structure we have in place now, in terms of both cost and performance measures as well as our ability to scale.”
Powerwave uses a host of techniques to ensure its operations run smoothly and continue to improve over time, including lean—kaizen events are staged regularly at its production and assembly facilities—and six sigma.
Organic growth ahead
Being able to scale quickly if necessary is critical because Powerwave believes it has itself positioned to enjoy a strong stretch of growth as consumer demand for wireless devices—and the bandwidth they demand—continues to grow in established economies such as North and South America, the Far East and Europe and as emerging nations begin to build telecommunications infrastructure that relies heavily on wireless technologies.
Powerwave, which was founded in 1985 and went public in 1996, not only helps carriers operate networks but helps address issues that are emerging as more people are adopting wireless as their first choice for telecommunications. For instance, amplifiers that help signals reach into and out of buildings are a major growth area in markets such as North America. Powerwave’s products address both traditional wireless networks as well as emerging and next-generation 4G technologies such as WiMAX and LTE.
Powerwave addresses those markets with a workforce of 2,200 from 20 locations around the world, including main regional offices in Hong Kong, Sweden and California and a direct presence in some 14 countries. It relies heavily on suppliers and contract manufacturers, performing mainly subassembly and finishing work, as well as some engineering and product design.
“Everybody in our company is excited by the wireless markets we serve, and the opportunities we find in such a fast-paced environment require a rapid response capability. We have lean pull systems in place and an integrated logistics system—all of which are critical for responding to week-by-week demand changes,” says MaGee. “Responding to growth also requires flexibility, and we spent a lot of time thinking about that when we designed our production and fulfillment network. We feel we have facilities we can scale, and we hand-picked supplier partners that can grow with us in a market that we anticipate will continue to expand for some time to come.”
Growing greener
Powerwave is constantly working on new products as well as making improvements to existing technologies, using its sales and service force to return feedback that is funneled through product-line-focused business units. The process starts with ongoing market analysis and an internal review that constantly seeks to balance where R&D funds are spent to maximize their value.
From there, the product development journey includes reaching out to the supplier community as well as internal manufacturing capabilities and then continues with concurrent engineering among all parties with the goal of arriving at a common platform. “From there we have what I think is a fairly standard process of tollgate checkpoints to evaluate how we are progressing through the development cycle,” MaGee says. Alpha and beta modeling and prototyping work is done in development centers—concentrated in India—and then production ramp-up begins with pilot programs. “From a systems engineering and product requirements point of view, we really have tried to keep the experts with that knowledge base close to the different markets we’re trying to address. We try to make those product decisions as close to the markets as possible.”
Whenever possible, Powerwave will seek to have suppliers do the bulk of the production or enlist the help of contract manufacturers who can build specific components or platforms in a consistent way. Doing so enables the company to divert those dollars that would be spent building factory capacity into research and engineering, where the heart of its value proposition lies, according to MaGee.
“In terms of investing our capital, our preference is to reserve it and expend it on higher-leverage value-added engineering and development,” MaGee says. “We’re a product and services company, and the core of our value proposition is that we have the engineering knowledge to enable customers to maximize what they are trying to do with their business by providing solutions that are best in class. Having operational excellence enables us to support that value-add by having responsive supply chain partners that can give us a technological and service leadership advantage.”
One innovation that customers crave—and Powerwave delivers—is to produce increasingly green or sustainable equipment. For instance, the company’s original main product line, power amplifiers, uses a significant amount of electricity to help boost the strength of wireless signals. Over time, Powerwave has worked with suppliers to develop more efficient models, with power efficiency today more than double what it was a decade or so ago.
“Electricity is a large part of the expense profile and operating budget for wireless operators,” MaGee notes. “For that reason and because they all strive to be very responsible corporate citizens, they have very thoughtful green initiatives of their own in place. We continue to see progressive and steady improvements in the energy efficiency of our products, and that remains a constant emphasis for us at the product level.”
Dovetailing with that push for efficiency are efforts to make many of its products easily compatible with renewable energy sources, designing them to be easily integrated with supplemental energy sources, such as battery backup power, or even designing products with built-in solar panels or wind turbines to help complement main energy sources.
“We also have our own in-house green initiative that brings together all of our own efforts in the areas of building efficiencies, waste management and recycling, and our own social responsibility programs,” MaGee says. “Like most companies, we’re constantly evaluating how we’re running our business from that perspective.”
Thriving in a difficult year
Top-line sales growth was the norm at the company as its expansion and diversification strategy dovetailed with the booming wireless space. But 2009 was a difficult year for many companies, and Powerwave was no exception. Sales fell from $890 million in 2008 to $567 million last year as recession and financial crises battered many of its customers in both the original equipment manufacturing space and network carriers themselves. Its exposure to emerging markets also meant it had to deal with significant issues such as currency devaluation as well.
“What was encouraging for us was that, given how much we had simplified and consolidated our business, we were able to reduce costs faster than revenues fell,” MaGee says. “So even though it was a very challenging year in terms of revenue, we were able to generate positive cash flow even in the face of a very tough economic environment.” In fact, total operating expenses for 2009 were $144 million, a reduction of over 30 percent from the $212 million Powerwave spent the year before.
While the first half of 2010 has continued to face global economic issues, there have been signs of rebounding and a return of top-line revenue growth, as several major wireless carriers directed more of their own cash into their capital expenditure budgets for this year and going forward. Carriers such as Sprint, AT&T and Verizon, among others, are investing hundreds of millions to build next-generation networks capable of delivering content at even faster speeds, each seeking its own competitive advantage in the process.
“The magical user experience created by iPhones and BlackBerries drives insatiable data demands that have really put a huge strain on the capacity of network operators,” MaGee points out. “If you look at the top level indicators, it appears the capital spending budgets of network operating companies have the potential to return to their historical growth trajectories.”
Keeping suppliers on the same page
Because its business model has it relying heavily on third parties to supply components and technology, Powerwave works hard to ensure that all are on the same page regarding not only current efforts but what lies ahead as well. Each year the company gathers a group of 50 to 60 of its top suppliers and key partners; this year’s event will take place in Singapore in December. “It’s a key part of our supplier strategy,” MaGee says. “We have representatives there from the semiconductor industry, electronic and mechanical equipment makers, and suppliers of logistics and inventory management services. Those partners are a key part of our drive for market leadership and our strategy for execution.”
This year’s topics will include searching for ways to make greener products and keep costs down as well as a look ahead to the next-generation networks that carriers are seeking to build out across the globe, MaGee says. Powerwave will share its expectations for 2011, which in turn will help suppliers lay the groundwork for being able to align their own production efforts.
The opportunities abound. In emerging countries, wireless networks are often being built as a first-generation telecommunications infrastructure, with the ability to provide even far-flung and remote populations with not only voice but data services. And in locations such as North America, with 70 percent of wireless calls or data requests coming from inside buildings, stadiums and other structures today, carriers are seeking technologies to help boost signals to get them through thick walls and other structures to keep customers happy with their service, MaGee points out.
The explosion of mobile content—music, video, news and applications—is also helping to drive network operators to build capacity. With its long-term expansion and integration strategy, Powerwave is positioned to help carriers address those and other issues, and it will constantly seek to innovate to be ready for the next wave.
In addition to its products, Powerwave is aggressively growing the services side of its business as well in response to customer needs. The company provides engineering support and design advice on how best to set up networks, including where on a network to best place equipment or how to design a network to maximize revenue generation. Post-installation work such as monitoring equipment performance and providing maintenance and upgrade support is another growth area. And before long, MaGee expects other opportunities will emerge that have yet to appear on anyone’s radar screen.
“It always seems that just as the industry gets adjusted to the current reality, another wave of technology comes along that people have a voracious appetite for,” MaGee says. “As a business we believe strongly in reinvesting the cash that we bring in. We continue to invest about 10 percent of our revenues into research and development, and we remain very excited about what we can do with that investment.” www.powerwave.com
