Alvarion. Will the New CEO Deliver? Quarterly Preview: 4Q09 Target Price: NIS 15.0

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1 Gilad Alper Research Analyst FEBRUARY 2010 Sector: Technology Market Perform Quarterly Preview: 4Q09 Target Price: NIS 15.0 Stock Data TASE ALVR Bloomberg ALVR IT Reuters ALVR Price (NIS) Shares O/S (m) Market Cap (NIS, m) Free Float (%) 98.9% 12 Mo. Range (NIS) Mo. Average Volume (NIS m) 28.0 Will the New CEO Deliver? (ALVR) is scheduled to release its 4Q09 results on Wednesday, February 3rd, before the US market opens, with an analyst conference scheduled for 9:00am, EST. $m, non-gaap 4Q09E 3Q09A 4Q08A Revenues Operating Income (0.6) (0.3) (0.7) Net Income EPS, $ will probably report only a marginal sequential revenue improvement, and a ~16% y/y drop in revenues. However, based on the large contracts the company has won since the beginning of the year, we could see a significant improvement in 2010, at least in terms of the top-line. Still, we view the company s main challenge to be its bloated cost base and we hope to hear from the new CEO what his plans are for the company and whether these include any cost-cutting measures. Until we are convinced the company can significantly improve profitability we will stick with our Marker Perform recommendation. ALVR Versus TA100 Relative Strength TA - ALVR Summary Earning Estimates Year-end Dec (US$ m) E 2010E Sales Gross Profit Operating Profit Net income EPS Key Valuation Ratios Year-end Dec E 2010E P/E (ENS, x) FCF/Share (USD) nmf nmf nmf FCF Yield (%) 0.3% 4.6% nmf nmf nmf EV/Sales (x) ROE (%) nmf 4.2% 3.2% 0.2% 0.7% 1

2 $ 000, non-gaap 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09E E 2010E WiMAX revenues % of total revenues 59.6% 54.5% 66.6% 62.6% 75.0% 76.4% 69.4% 71.9% 60.9% 73.2% 70.0% y/y 60.0% 36.2% 41.4% 20.9% 27.3% 18.2% -18.2% -3.9% 38.0% 4.1% 4.2% q/q 10.2% -5.0% 30.3% -11.3% 15.9% -11.8% -9.8% 4.1% Non-WiMAX revenues % of total revenues 40.4% 45.5% 33.4% 37.4% 25.0% 23.6% 30.6% 28.1% 39.1% 26.8% 30.0% y/y 0.3% 7.1% -3.2% -12.8% -37.5% -56.4% -27.9% -37.0% -2.2% -40.7% 22.2% q/q -9.6% 16.8% -21.9% 5.6% -35.2% -18.5% 29.2% -7.7% Sales 67,168 69,740 74,279 70,094 67,874 58,741 58,383 58, , , ,541 Y/Y 29.0% 21.2% 22.5% 5.7% 1.1% -15.8% -21.4% -16.3% 18.9% -13.4% 9.0% Q/Q 1.3% 3.8% 6.5% -5.6% -3.2% -13.5% -0.6% 0.5% Gross profit 32,992 34,325 35,354 31,583 30,763 26,795 27,551 26, , , ,493 Gross margin 49.1% 49.2% 47.6% 45.1% 45.3% 45.6% 47.2% 45.0% 47.7% 45.8% 45.0% R&D, net 14,569 15,217 13,536 13,648 14,135 12,234 11,837 11,442 56,970 49,648 51,781 R&D % 21.7% 21.8% 18.2% 19.5% 20.8% 20.8% 20.3% 19.5% 20.3% 20.4% 19.5% Selling and marketing 14,149 14,398 15,511 14,370 12,921 12,464 12,467 12,322 58,428 50,174 55,764 Selling % 21.1% 20.6% 20.9% 20.5% 19.0% 21.2% 21.4% 21.0% 20.8% 20.6% 21.0% G&A 3,816 4,086 4,148 4,229 3,532 3,220 3,523 3,200 16,279 13,475 12,800 G&A % 5.7% 5.9% 5.6% 6.0% 5.2% 5.5% 6.0% 5.5% 5.8% 5.5% 4.8% Operating profit (loss) ,159 (664) 175 (1,123) (276) (560) 2,577 (1,784) (851) Operating margin 0.7% 0.9% 2.9% -0.9% 0.3% -1.9% -0.5% -1.0% 0.9% -0.7% -0.3% Financial income, net 1,587 1, ,298 2,151 2,400 Net income 2,045 1,688 3, (605) , ,549 Net margin 3.0% 2.4% 4.1% 0.2% 1.1% -1.0% 0.3% 0.1% 2.4% 0.2% 0.6% Diluted EPS (0.01) Diluted # of shares 64,532 64,565 64,392 63,083 62,468 61,995 64,605 64,596 64,453 64,547 64,596 2

3 Ratings Key 1. Market Outperform: Expected to outperform the relevant broader market index over the next months. 2. Market Perform: Expected to perform in-line with the relevant broader market index over the next 6-12 months. 3. Market Underperform: Expected to underperform the relevant broader market index over the next 6-12 months. Disclaimer and Disclosures Analyst Information Name Gilad Alper License type Investment advisory License number 3995 Address 7 Jabotinsky Street Ramat Gan Israel Education B.A Economics (1995), Magna Cum Laude, Tel Aviv University Master in International Business Administration (1998), The Norwegian School for Economics and Business Administration Experience Gilad Alper is an analyst of 10 years and served at a number of international investment banks including Commerzbank Securities (London) and Merrill Lynch (NY). Licensed broker: Excellence Nessuah Brokerage Services Ltd. 7 Jabotinsky Street Ramat Gan Israel Conflict of interest - Analyst At date of preparation of this report, the analyst is not aware of any conflict of interest with respect to the company that is covered in this report. Information regarding analysis Valuation methodology Using our earnings forecasts and historical data as a base, we have used DCF models, peer group comparison and multiple analysis. Risks 1. The company is exposed to increased competition in its existing markets and could be facing even tougher competition in the potential mobile WiMAX market. 2. The company could be facing an erosion of its technological advantage as larger competitors have more resources. 3. The company is loss making on a GAAP basis and there s no confidence it will be able to reach significant profitability on a GAAP basis. Analyst Certification I, Gilad Alper, certify that views expressed in this report accurately reflect my personal views about the subject securities and issuer. I also certify that I have not and will not receive any compensation for providing specific recommendations or views expressed in this report. 3

4 NIS Share Information (NIS) ALVR share price ALVR Target price Recommendation history Change Rating Target price NIS 05/11/2007 Neutral 4

5 Disclosure Excellence Nessuah Brokerage Services Ltd (the 'Company') Conflicts of interest 1. This report was published as a quarterly preview. 2. At the time of publishing this report, or in the 30 days previous to this report, the company or companies associated with it, held in its Nostro or managed accounts, significant holdings in the shares of the company analysed, or companies associated with it. Disclaimer The analysis included in this report is for informational purposes only and is offered for the knowledge of investment advisors solely as background information that may be used as one of a number of tools that are available to help such persons formulate recommendations to their clients, with whom they have signed consulting agreements, as required under the law. This report and/or the information contained herein and/or the analysis provided herein should not be considered as an offer and/or advice to purchase and/or sell and/or hold the securities and/or the financial assets described herein or any other securities and/or financial assets. This document is presented solely for the use of professional and experienced investors as defined in the First Schedule of the Israel Securities Law (1968), who make their investment decisions without relying on this document, or on any documentation related to it. Companies within the Excellence Nessuah Group, its directors, managers and workers, take no responsibility for any direct or circumstantial loss that may arise from use of this document or any documents related to it. The analysis presented herein was performed on the basis of information that was published and/or that was made available to the entire public, including information that was collected and prepared by the Company and information that originates from other sources that the Company assumes to be reliable, although no independent investigation as to the credibility of such was made by the Company. This report does not constitute a written proof and/or approval as to the credibility of such information. The information presented in this report does not claim to include all the information that an investor would require, and does not claim to constitute a complete analysis of all of the facts and details that appear in the report, and the opinions presented herein may change without prior notice. Accordingly, this report does not constitute in any way a substitute for investment advising that would take into consideration the figures and special needs of each person. Anyone who relies upon the information presented in this report does so at he's own risk and the Company, companies controlled by the Company and their shareholders, managers and employees, shall not bear any liability whatsoever for any damage and/or loss that may be caused as a result of using this report, and shall not guarantee or bear any responsibility whatsoever for the reliability of the information presented in this report. It should be noted that the Excellence Nessuah Brokerage (the Company) Services Ltd is part of the Excellence Group, which is part of the Delek Group. Excellences Group businesses include, inter alia, the management of investment portfolios, securities trade, stock market transactions, and investment banking. Furthermore, companies controlled by the Company and it's shareholders, or other related parties hold or may hold, from time to time, either directly or indirectly, securities or financial instruments that are the subject of this report, either before they are published, at the time they are published or after they are published. In addition, by virtue of the fact that the Company, companies held by the Company, the Company s shareholders, or other related parties are entities that serve as underwriters or in the area of investment advising, portfolio management, or investment marketing, such entities may act as underwriters for the securities of the Company that is the subject of this report, and may be related to the Company by virtue of commercial ties. In addition, the Company serves as a market maker with regard to the securities of various companies, pursuant to the approval granted by the Tel Aviv Securities Exchange Ltd., and may use at any date as market maker with regard to the securities of the Company that is the subject of this report. All rights contained in this report are the property of the Company. This report is designated for the recipient whose name appears above, and any transfer of portions of this report or publication of any kind, without the advanced, expressed, written approval of the Company, and without including this provision in the text of the report in a prominent place, is strictly prohibited, unless noted otherwise. 5

6 Excellence Nessuah Securities Contact Page CEO Eran Fuchs Telephone eran.fuchs@xnes.co.il Deputy CEO Eytan Ben David Telephone eytanb@xnes.co.il Research Department Chief Macro Economist Shlomo Maoz Telephone Mobile shlomom@xnes.co.il Analyst Gilad Alper Telephone Mobile gilad.alper@xnes.co.il Sales & Trading Department International Sales Daniel Goldstein Telephone Mobile danielg@xnes.co.il Head Trader, International Desk Daniel Rapoport Telephone Mobile daniel.rapoport@xnes.co.il 6