Aether hires firm to help it chart strategies for turnaround

Analysts praise effort to achieve profitability

February 27, 2004|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

After cutting hundreds of jobs and shedding several earlier acquisitions over the past few years, Aether Systems Inc. said yesterday that it has hired a Virginia investment firm to help the Owings Mills wireless developer turn around its sagging fortunes.

Friedman, Billings, Ramsey & Co. Inc. will advise Aether on possible strategies. That could include acquiring new or complementary businesses, selling off other parts of the company, new investment strategies or other initiatives.

Company officials declined to elaborate. Founder and Chief Executive Officer David S. Oros said only that Aether hopes to reach profitability sooner with help from Friedman Billings.

Analysts praised Aether's move yesterday. Recent efforts to cut costs and slice nonessential divisions could help the company survive after the beating it took during the tech investment collapse, they said.

"Aether is the classic riches to rags story," said Stephen Drake, a program manager at IDC, a market research firm in Framingham, Mass. "They created this entity that had nowhere to go but down. Part of the problem they had was that all the products and all the acquisitions they had took a lot of time to integrate. They tried to do too much. The Aether we're seeing today is a much different Aether than was around in 2000."

Some analysts believe that with guidance from Friedman Billings, Aether could position itself to benefit from the Department of Homeland Security's $46 billion budget.

"There's a huge opportunity in front of them," said Christian Galatti, an analyst with the Shemano Group in San Francisco. "Aether was one of the first companies out there offering technology for homeland security, allowing fire and police departments to have instantaneous access to all databases all the time. The problem is that it's almost impossible to determine how much the government will spend money and when they will spend it."

"They've got to get those homeland security contracts," he said. "Execution will be important."

Execution has not often been Aether's strong suit, analysts said. When Aether burst onto the scene in October 1999 with an initial public offering, the then-3-year-old company saw its shares more than triple in value from $16 to close at $48.43 its first day on the Nasdaq stock market. Although it had never made any money, Aether was valued at $1.26 billion after its IPO.

The business was based on a new way to allow different portable computing and communications devices to interact. Oros, a former president of Westinghouse Electric's wireless data group, was entering a highly competitive field designed around wireless technology that would help improve the way people perform their jobs by allowing them to tap into information anytime, anywhere.

Within four months of its IPO, Aether's stock rocketed to more than $250 a share. By March 10, 2000, its stock hit an all-time high: $345 per share. Seven days later, its secondary offering raised $1.4 billion.

But as Wall Street began acknowledging the lack of earnings among technology companies and the Nasdaq market began its slide down, Aether continued acquiring companies. Aether was unable to shift gears quickly enough and its stock took a nose dive, too.

"Everybody thought mobile computing and wireless applications would be the `killer application' going forward," Galatti said. "The reality of the situation was that the corporate world never adopted mobile computing, while the government did. Aether's market never materialized. They were left with a market that was degenerating instead of accelerating."

Yesterday, Aether's stock rose 28 cents to close at $4.46.

Aether has yet to turn a profit. Over the last couple years, the company was forced to cut hundreds of jobs. It now employs about 300 people, down from a high of 1,300. These days, it focuses mostly on its business lines designed for trucking companies, law enforcement and the military, among other government and transportation clients.

"The announcement shows they understand and recognize that they need to change," Drake said.

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