Novatel shares hit two-year low as Q2 disappoints

By Aftab Ahmed

BANGALORE (Reuters) - Shares of Novatel Wireless Inc (NVTL.O) fell as much as 25 percent to a two-year low on Wednesday, a day after the maker of wireless modem's reported lower-than-expected quarterly results and forecast a weak third quarter.

The company's gross margin took a big hit as there was an inventory build up of products its was trying to phase off, ThinkPanmure analyst Mike Burton said by phone.

The company's gross margin for the second quarter dropped by 5 percent to 24 percent from a year earlier.

According to Burton, the company is in a transition phase as several of its products were at the end of their lifecycles.

Dundee's Arindar Mahal and Avondale Partners' John Bright feel that an audit committee review into the company's revenue cut-off procedures, internal control and accounting related to certain customer contracts was taking a toll on its performance.

Dundee's Mahal also noted softening demand at both Verizon (VZ.N) Wireless and Sprint (S.N), the company's key customers, as well as heavy dependence on low-priced legacy products for the drop in revenue.

The second-quarter profit was $25,000, or break even per share, compared with $8.0 million, or 25 cents a share, a year earlier.

Excluding stock-option expense, earnings were 3 cents a share, that came way below analysts' estimates of 14 cents a share.

Revenue fell 7 percent to $89.8 million. Analysts were looking for revenue of $87.8 million.

Novatel shares hit a low of $6.15, before recovering some of their losses to trade down at $6.59 Wednesday on Nasdaq.

(Editing by Anil D'Silva)