- The Washington Times - Saturday, November 24, 2001

Shares of Aether Systems, an Owings Mills, Md.-based wireless services provider, rose to their highest levels in more than two months last week, following a quarterly earnings report and two key announcements.

On Nov. 16, a Friday, Aether announced its involvement with a pilot program to implement wireless technology into homeland security systems. Investors took notice, pushing Aether's price to $8.96 the following Monday, then its highest level since Sept. 9. That announcement followed a Nov. 15 third-quarter earnings report that indicated the company's cost-cutting measures were on track, and a Nov. 5 announcement that the company had allied with America Online to provide wireless service to small and medium-sized businesses.

But it remains to be seen, analysts say, if investors will continue to look at Aether favorably, given the overall economic downturn and the company's history of producing revenues that don't match costs.

Revenues for the quarter were $25 million, compared to $16.2 million for the same quarter last year. Aether says operating expense for the quarter dropped from $63 million last quarter to $53 million and remains on track to decrease operating expenses to $38 million in the first quarter of 2002.

"[Aether's] costs were terrifically out of line with revenues," says Tim Quillin, an analyst with Stephens, Inc. in Little Rock, Ark. "My belief is that this is going to be a long process."

Aether's cost-cutting efforts are designed to streamline the company down to its core businesses. The big question, however, is what those core businesses are. The company's specialty has always been getting data, such as corporate database information, to mobile workers in various fields of work. But the company says it is poised to concentrate on transportation systems, public safety and security agencies and the small to medium-sized business market. And analysts say pinning down core businesses is tricky when it comes to Aether.

Mr. Quillin says the company has many business sectors that are "loosely associated" with the wireless revolution, many of them existing as a result of an aggressive string of acquisitions following the company's hugely successful initial public offering in 1999. A year ago, shares of Aether were trading at more than $100, the company went on a buying spree, acquiring companies like Cerulean Technologies, Inc., which brought the company into the public service market, and Riverbed Technologies, Inc., a software company that facilitates the transfer of data from desktop to wireless devices.

Another big question surrounding Aether is whether it can capitalize on the fact that many of its former competitors and fellow darlings of the tech boom are now out of business. In announcing quarterly earnings on Nov. 15, company executives seemed optimistic that they would be able to capitalize on less competition.

"The majority of [our competitors] are gone now," Chief Financial Officer David Reymann says. "We have more money than anyone in the industry and are winning contracts."

Analysts agree that much of Aether's former competition is now gone. But they point out that now it must go toe-to-toe with bigger companies such as IBM to compete.

"It's certainly a double-edged sword," Mr. Quillin says.

Shares of Aether systems closed Friday at $8.24 on the Nasdaq.


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