Aether seems poised for next reinvention

Tech company became trader of mortgage-backed securities

August 05, 2005|By Tricia Bishop | Tricia Bishop,SUN STAFF

Aether, which once employed 1,400 as a leading wireless communications company and now employs about 10 people as an investor in mortgage-backed securities, might be looking to reinvent itself yet again.

The Baltimore company announced this week that it had stopped purchasing mortgage-backed securities because of "very challenging market conditions."

Over the past year, the former technology high-flier completed sales of its wireless technology divisions, got rid of most of its staff (only eight names are listed in its voice-mail directory), moved to the city from Owings Mills and became a mortgage-backed securities trader.

Last month, the company further reorganized to become its own holding company called Aether Holdings Inc., whose sole purpose is to trade stock of the previous company, Aether Systems Inc.

More change might be ahead. During a conference call yesterday to discuss earnings for the quarter that ended June 30, Aether executives reiterated a refrain that's been cropping up in its U.S. Securities and Exchange Commission filings and conference calls for the past two quarters. "We will continue to explore other strategies and investment vehicles," Chief Financial Officer David C. Reymann said.

That promise was coupled with reports of the nine-year-old company's first-ever profitable quarter. Aether had a net income of $778,000, compared with a net loss of $49.8 million in the comparable quarter last year. The strategic and financial revelations were expected, but the added strategy details were somewhat new.

While Aether has previously said it will focus on mortgage-backed securities only as long as that works, it has yet to offer much information about other possible directions, although that seems to be the way the company is headed given that it hasn't invested in the securities business since May.

Reymann said in an interview yesterday afternoon that it was fair to conclude that without a change in market conditions, there's "a high likelihood that the company will not buy anything additional."

Aether selected the mortgage-backed securities strategy at a time when interest rates were lower and the difference between income generated from the securities and the costs associated with them was larger.

The company's strategy is "not just about generating income," Reymann said in the interview. "We want to generate significant income."

During the conference call, after Alan Ware, the managing partner of New York hedge fund Pike Place Capital Management LLC, asked for "more color on the potentials out there." Reymann said "there are a number of possibilities" and proceeded to list several.

The company could continue with its mortgage-backed securities strategy, it could go into other real estate activities, debt-related activities, invest in other companies, mezzanine-type investing or it could buy another company, he said.

"There are literally dozens out there that we are continuing to evaluate," he said, adding that it's safe "to assume that we're getting pretty close [to a decision] at this point."

He told Jason Stankowski of Clayton Capital in California that the company could bring in new management to run things if circumstance calls for it.

For now, Aether's main focus seems to be evaluating its focus and keeping its options open, though one goal is clear: It intends to protect its $1 billion in losses earned during its wireless days. Those losses can be carried forward to offset taxes that the company would have to pay on any profits. Of course, that assumes profits continue.

"Our goal is to use these losses as quickly as possibly," Reymann said, adding later that "shareholder value is going to drive our decision."

Aether's stock yesterday rose 20 cents, nearly 6 percent, to close at $3.66 on the Nasdaq stock market.

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