Aether is still fighting slump

Wireless provider shrinking again, cutting 280 jobs

October 04, 2001|By Andrew Ratner | Andrew Ratner,SUN STAFF

Last winter, its stock was trading at more than $100 a share. Local politicians were wooing it to build a new headquarters. For a time, it was hiring 100 employees a month. It even cut a deal to have Tony Siragusa, the Baltimore Ravens' gregarious 340-pound lineman, wear one of its signature caps at the Super Bowl media circus.

But the world looks much different today for Aether Systems Inc., the Owings Mills-based company that is considered a pioneer in mobile computing.

This week, Aether began cutting 280 jobs - the latest in layoffs that have shrunk the company by almost 40 percent this year. Its stock closed yesterday at $6.24 on the Nasdaq stock exchange, up 23 cents, but not far from its low of $5.60.

What's gone wrong?

Primarily, the rocky economy has deterred corporations from spending a lot of money on mobile computing, industry and investment analysts say. However, they expect Aether to emerge as one of the survivors in the field.

"Aether is probably the largest wireless applications provider out there. If they went under, I'd be really surprised," said Becky Diercks of Cahners In-Stat Group, a technology research firm in Newton, Mass.

"Aether's still there because it has a long track record of building solutions. It has clients. It didn't just jump into this. It has a lot of money in the bank," said Carl Zetie, an analyst with the Giga Information Group, a research firm based in Cambridge, Mass. "There are three or four dozen other companies that had $10 million to $20 million in venture capital that are gone."

Aether executives declined to comment this week. A spokesman said officials were focusing on a restructuring and on getting the staff through a difficult week of layoff news.

Fast growth

The company could barely keep pace with hiring needs a year ago, as it grew from 37 employees in 1998 to 1,400 employees this year. It acquired eight companies last year, some at peak prices. Aether executives thought demand for wireless services would allow them to absorb most of those workers. But as business slowed and losses mounted this year, the company let go about 250 employees in the spring, followed by the 280 layoffs beginning this week.

"They've got a lot of overlap in terms of personnel, so it's not a big surprise they're laying off people," said Jeffrey Fieler, who follows the company for the investment firm Bear Stearns in New York. "They've been burning the money pretty prodigiously."

Aether is considered one of the innovators in mobile computing. Chairman and founder David S. Oros once explained that he took two demotions at his former employer, Westinghouse Electric Corp., so he could gain expertise in the technology, which he envisioned as having great potential.

Three years after Oros formed Aether, the company went public as technology fever swept Wall Street. Aether raised $110 million in its initial offering in October 1999, as its stock price jumped from $16 to $48 the first day. It amassed $1.5 billion in a second public offering in February 2000. Its stock rocketed to more than $300 a share.

But as the economy wheezed and capital tightened, corporations grew reluctant to plow money into "the next big thing," Zetie said. Meanwhile, regulatory and legal battles on a national level stalled development of faster networks on which information could travel through midair - the so-called "next generation" known as 2.5G and 3G. This year, Aether launched software called "Fusion" that it hoped would address confusion in corporate boardrooms over the mish-mash of network systems, but it wasn't enough.

`A temporary phase'

"It's easy to cut anything new and less familiar, and wireless meets that description with any company," said Warren Wilson, an analyst in Seattle for Boston-based Summit Strategies. "There's been a quiet shakeout occurring as wireless companies, some with strong technologies, go under. And they don't make nearly as much noise when they go under as they did when they launched."

"It's a temporary phase," said Naqi Jeffery, a vice president at Strategis Group, a Washington firm that tracks wireless companies. "We've been surveying telecom executives and project that the market will fully recover, with widespread deployment by the end of next year."

Cahners In-Stat forecasts that the number of U.S. business subscribers to mobile data services will balloon from nearly 3 million last year to 32 million in 2005.

Aether hopes to wait out the chill with its estimated $650 million reserve. That is expected to be whittled down to $354 million by the end of next year, according to Deutsche Banc Alex. Brown Inc.

Predicting the upturn is difficult because new technologies don't have historical track records to rely on, as do traditional products, analysts said.

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