In addition to its traditional rival, Sierra Wireless (SWIR), Novatel is facing significant challenges from newly launched products by large manufacturers, including Qualcomm Inc. (QCOM) and L.M. Ericsson (ERIC). Qualcomm has launched its Gobi chipset that combines broadband modem technology for high-speed 3G networks (both EV-DO and HSPA) with GPS functionality. The Gobi solution has significantly captured embedded solutions market share from Novatel.

The market for broadband wireless access solution is emerging rapidly in terms of technological innovation and demand. Although Novatel has developed a niche in its MiFi mobile intelligent hot spot, we anticipate increased competition in the near future. Qualcomm, Huawei Technologies, and ZTE are on the verge of introducing their own version of intelligent mobile hot spots. Novatel has also hinted at sequential demand weakness in the fourth quarter of 2009 for its MiFi product line.

Nevertheless, Novatel has generated a record high level of free cash flow and significantly improved its gross margin. In addition, the company has a very strong balance sheet, capable to support its long-run business endeavors. Management has taken a decision to extend the MiFi platform with new features and functionality, as well as building a MiFi ecosystem through organic development and strategic partners.

According to our assessment, all these positive factors are already reflected in the current valuation, leaving little room for above-market gains.

Intel (INTC) and Nokia (NOK) have joined hands to tap the smart phone and MID market. Nokia will use the Atom processor in its smart phones and mobile Internet devices going forward, even as Intel licenses Nokia's 3G HSPA modem technology.

The two companies have used open source software from Linux to develop their respective mobile platforms. The strategic relationship is expected to enable Intel's Moblin (currently in beta stage) and Nokia's Maemo to incorporate several open source applications, such as oFono, ConnMan, Mozilla, X.Org, BlueZ, D-BUS, Tracker, GStreamer and PulseAudio through some co-coordinated effort. The association will also enhance device functionality for both in terms of Internet connectivity, wireless communication, superior graphics and comprehensive multimedia capabilities.

Nokia currently holds about 40% share of the mobile phone market and a 34% market share in smart phones. The partnership should, therefore, be of great strategic importance for Intel. Additionally, Intel's long-range plans of entering the mobile phone market will obtain further impetus from the licensed modem technology.

Intel has a comprehensive mobile roadmap, with Moorestown closely designed to follow Atom later this year, and then Medfield by early 2010. Power efficiency is expected to improve with each successive platform. We expect the Wind River acquisition to play a key role in the company's mobile plans.

Although it is still too early, the collaboration could be bad news for companies like Qualcomm (QCOM) and ARM, who have been shipping processors to Nokia. The Maemo is still under development, but enhancements could put up stiff competition for the Android operating system developed by Google (GOOG), or the blackberry which uses QCOM chipsets and ARM processors) developed by Research In Motion (RIMM), or even the iphone developed by Apple (AAPL).