WAVE is developing 4th generation (4G) wireless technologies, advanced content management systems, and new spectrum utilization techniques to facilitate enhanced mobile TV. In fact, their host of products drives the largest 4G network in the world. Recently, Verizon Wireless' launched their V-Cast service using NextWave's advanced mobile device software that generates broadcast quality video straight to cell phones. Their mission is to supply the wireless broadband and mobile multimedia technologies required to make 4G multimedia a reality.

While the story has become more interesting as time progresses, it hasn't been a complete bed of roses. In 2002, after selling off other wireless spectrum assets, NextWave's predecessor business ended up going through bankruptcy proceedings. That first spectrum sale generated $11B and fortunately for early investors, all was not lost. In fact, after all was said and done, nearly all the old shareholders reinvested in the new entity to the tune of about $550M. In the process, many made quite a bit of money on that first big spectrum asset sale. In April of 2005, NextWave re-organized and in early November 2006 began trading on the OTC Bulletin Board. By January of 2007 NextWave was accepted (only exchange stocks are "listed") for trading on the NASDAQ and began trading at $10.00 per share.

NextWave has achieved aggregate funding of $1.2B since reorganizing, and currently has over 1,100 employees in 27 offices worldwide. One of the things we like best is that insiders hold over 58% of the company's stock. NextWave has spent their time and money wisely, and their software and chipsets demonstrate unbelievable power. That power is not unlike the Company's management team, led by visionary CEO Mr. Alan Salmasi previously President of the Wireless Telecommunications Division and Chief Strategic Officer of Qualcomm. In our view, he has done an outstanding job in getting the Company back on track. The fact is if you've ever watched streaming video on a PDA or cell phone, it's highly likely your experience was powered by NextWave Wireless.

On April 3, 2008, NextWave announced that they hired Deutsche Bank and UBS Securities to assist in selling off their remaining wireless spectrum assets. The federal government reportedly tags the value of these assets at $6B but, keep in mind those are government numbers. At the end of March, these assets were valued on the books at $457.4M net after taxes. At a current market capitalization of around $600M and with another wireless spectrum sale pending, it appears to be a case where investors are able to buy WAVE stock and pick up the rest of their business at a substantial discount if not for free. That is if the wireless spectrum assets only bring in $600M rather than $6B. Either way, we like the math.

FUNDAMENTAL OUTLOOK

For a moment let's RANDOMLY assume the government's spectrum asset valuation numbers are just flat out WRONG. Let's say they're wrong by $4B. Is that enough? We don't know for sure, but to us it doesn't really matter in the long term view of things. Here's why. At this kind of arbitrary discount, a wireless spectrum sale generating just $2B would bring in about $19 per share in cash. KEEP IN MIND, that's purely a HYPOTHETICAL assumption and the company would certainly want to pay down debt. However that works out, we hope you get the idea. At today's share price, WAVE's market cap is about $555M. Once again, this means you can buy the stock today and pick up the rest of the business for next to nothing.

The beauty of the opportunity is that over the past few years, NextWave has assembled an extremely talented team of developers from some of the world's leading technology franchises, people from Motorola, Intel and Qualcomm. For NextWave, the wireless spectrum is to the razor as their software and semiconductor chipsets are to the blade. If our analogy is less than clear, let's just say it's a business model that has worked well for both Gillette and Qualcomm.

In the March 2008 quarter, revenues grew 25%, which was actually up $5.2M to $26M from the prior December 2007 quarter. NextWave attributes the increase to their wireless broadband network equipment and subscriber devices, and from continued growth in mobile device software royalties generated by the Company's PacketVideo subsidiary. On top of that, they added $3.5M in quarter over quarter growth in short and long term deferred revenue, a 6% gain in that category. This boosted billed revenues to $29.5M. That projects to over $100M in revenue over the next four quarters with no growth whatsoever. By comparison 2006 revenues were $59M, up 143% year over year.

Needless to say, the Company is not yet making money, in fact they lost $1.09/share. However we can recall another San Diego wireless company that lost money early on and things worked out very well for early investors in that Company. With over 227 million phones in service utilizing some form of NextWave software or semiconductor chip set, it would be hard to call NextWave anything but an ongoing success despite the lack of earnings visibility. At the pace mobile technology is going and growing, it appears the long term wait that surrounded the Company in the early days six or seven years ago, is getting nearer by the day.

TECHNICAL REVIEW

As noted above, NextWave began trading at $10.00 in late 2006 and closed at an all time high of $12.75 on January 17, 2007. For six months, WAVE shares tried to base before finally breaking down through the end of June 2007. (As an important aside, in August 2007, San Diego commercial real estate developer and Board Member Doug Manchester purchased over 803,000 shares for about $5.49M, or $6.83 per share.) Six months later, in late January, 2008, WAVE hit an all time low of $3.28 per share, although it may have been a misprint. Four months later, on April 15, 2008, WAVE shares closed at $4.18 per share after briefly breaking below $4.00 that day.

The tale of the tape is usually pretty telling, and on April 24, shares traded up $1.95 on volume of 3,919,100 shares. The next day the stock traded in place, on volume of 2,569,800 shares. Just a few short weeks ago, average daily volume in the stock has increased by nearly 100,000 shares per day. Trading action paints the picture of a noteworthy technical reversal, even though the stock has drifted back to the $5.25-5.75 area after hitting an interim closing peak of $7.15 on May 13, 2008. This 25% retracement from the peak looks like a great entry point to us.

It would be a surprise to no one if WAVE shares retest their prior lows, especially if the recent rally decides to stay broken. However, with that said, WAVE's declining 50 day moving average line is converging on its rising 13 day moving average line. It appears a crossover could occur somewhere between $5.50 and $5.75 per share any time over the next several weeks. Again, much depends on whether the market tide remains high or whether it decides to drift back so to speak.

Like the old Lite beer commercials used to say, "YOU make the call." Here's the OTC Digest's call. The recent reversal in NextWave's trading action portends an eighteen month price target near the old highs of $12.75. Regardless of how long it takes, we see perhaps $0.50-$1.25 in downside risk with $5.00-$6.50+ of upside potential. These are the types of risk/reward numbers we've built a career on. Revenue growth is ramping up to customers like Verizon, Motorola, Nokia, Vodafone, and T-Mobile, among others. To support dynamic growth the company made six acquisitions last year.

THE BIG PICTURE

NextWave's future appears to be very promising although we'll be the first to caveat that there can be no assurance of a quick sale of the wireless spectrum assets. The best thing a drawn out process will do is reallocate WAVE shares into stronger hands, or allow those who are short to feel like a stopped clock, that would be right twice a day. The OTC Digest always encourages readers who become investors in any of our featured companies to be PATIENT. The OTC Digest would view any market weakness as an excellent opportunity to build a meaningful position over time.

In the meantime, while we wait for news of the spectrum sale to unfold, revenue growth is beginning to gather momentum. As NextWave's fundamentals continue to improve so too should their share price. With a risk/reward scenario likely to play itself out over the next twelve to eighteen months, a reasonable opportunity exists for share prices to double from current levels. As we like to say, get in early or get in often, either way the future for NextWave Wireless looks bright.

Video of NextWave's 2008 Shareholder Meeting

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Corporate Information Links:

Web Sites: Corporate Web site
Stock Quote: NasdaqGM: WAVE
The Numbers: Key Statistics
Investor Info: WAVE Investor Relations Link