For the initiated, what exactly does Aether do? You make software that allows businesses to stay in touch with people in the field through their personal digital assistants.
Aether is a wireless solutions provider; we’re really the IBM of wireless. A customer like Office Depot will come to us and say, “We want to extend our wireless workplace.” We use our software platform to do that, but we also use our engineering force to do back-end integration. We develop the system that runs across our software and then we host it out of our Tempe, Arizona network operations facility. We do every aspect of a solution from engineering, developing the application, having it run on our platform to hosting and managing it. We’re a total solution provider.
After announcing a deal with America Online last Tuesday, your stock was up 26 percent. Even with that spike, you are still in the single digits, well below your $300-a-share high. Is this latest deal a landmark on the road back up?
When we went public, we hit the hottest market ever. We rode with that on a very new technology. When the markets fell, all innovative technology was basically viewed as something way out in the future. What the market has now started to realize–as the market starts to move back and as Aether starts to move back ever so slightly–is that wireless and mobile computing is going to be a big wave of the future. Aether is positioned in a great way with cash, technology and proven customers. The AOL agreement is just an absolute endorsement of Aether’s ability to deliver key technology to marquee customers and to give customers the assurance that we’re going to be here for a long time.
Do you view this as a landmark, though? Is this on a par with the Aether Fusion software you rolled out this year? At the time, you compared that to Microsoft and Windows.
No, I’d say this is another key deal for us. I wouldn’t say this is a landmark equivalent to rolling out a big new product. An extremely important customer went for us, and we’ll look back at this as one of our new growth areas. We’re seeing growth really in three different areas: transportation/logistics, homeland security and AOL is very important because it gets us into a new market with small- and medium-size businesses.
As a part of the deal, AOL made a minority investment in Aether. You haven’t disclosed how much that was, but are you discussing how this deal will affect Aether’s bottom line? How much revenue do you expect to see as a result of this?
We can’t give financial terms of the deal at AOL’s request, but we did receive a contract to develop this service. We will co-brand the service and take it to market with AOL, and Aether will receive the ongoing revenue for these small and medium business offerings. In addition to the development contract that we got from AOL, this will mean a revenue increase for the third and fourth quarter of next year.
You mentioned homeland defense as one of your markets. How has your business been affected by the September 11 attacks?
We have a mobile government division, and we have over 900 public safety agencies signed up. They were looking for more criminal records and other information sources. Now they want to switch, and this is good for us — from laptop applications to more handheld applications to really open up the channels for information and notification in case of an emergency. What we’re seeing is an increased demand in our mobile government division for wireless handheld products that give people the ability to communicate, notify and check out suspicious events or people.
You report your third-quarter earnings on Wednesday. What can we expect? Any surprises?
I think it’s pretty much what we’ve projected to the market. We’re on schedule to meet everything [and] we’re ahead in cutting operating expenses to accelerate to profitability.
When do you expect to be profitable?
Near the end of next year. We’re taking our operating expenses from $64 million a quarter to $35 million in the first quarter of next year. Now what we need to see is the market get a little healthier and our revenue start to grow as it did before.
We’re still one of Forbes’ fastest-growing tech companies. We grew from $6 million in 1999 to $58 million last year, and we’re going to do over $110 million this year. So, we have delivered, but the market wants to see profitable companies. To do that you do three things. One, you cut operating expenses, which we’ve done. Two, you grow your revenue streams, and we’re seeing new markets with this AOL deal, with mobile government and with transportation/logistics. Third, you improve your gross margin. We’re actually shutting down some revenue streams in Europe that were losing money to improve gross margins.
One of the ways you’ve cut expenses is by laying off employees, 500 since spring. Do you have more cuts in the works?
We do not have any more layoffs planned. We’re very comfortable where we are right now with 800 people. We’re one of the very few surviving wireless data solutions companies out there. With 800 people, $600 million in the bank, the marquee customer list that we have and [our] intellectual property we’re really poised to take a significant part of this market as it continues to materialize next year.
Wireless solutions were really taking off in the early part of this year, [but then] the market collapsed and a lot of people put wireless data projects on hold until early next year. We are growing. We just have to grow now and be profitable. That’s the challenge.
Are you still looking to move you headquarters to UMBC?
We’re in discussions with UMBC. We’re desirous to move to UMBC. We want to consolidate a large part of our operations. UMBC has a lot of appeal to me. We are in discussions with them, but we had to delay that just due to the economy and where we were with laying people off–it just wasn’t an appropriate time.
When do you think you will move?
Hopefully, by the end of the first quarter we’ll have an agreement with them and then they’ll have to actually build the building, so we wouldn’t actually consolidate there for a year and a half to two years.
How much of a limitation is bandwidth in the wireless sector? The FCC just voted to lift some of the caps on the wireless spectrum. Is that important to Aether?
That’s a very interesting question and a good question. You’ll talk to analysts who’ll say, “I don’t see wireless data taking off.” At the same time, they’ll say, “The networks seem like they’re at full capacity.” The reason is, wireless data is taking off. We’re seeing two to three advanced networks coming out. I think they’ll go on line in about a year, year and a half from now. The telecom industry has never failed to meet bandwidth concerns. In the history of telecom, if there are customers there, there’s bandwidth. We have yet to run up against significant customer issues because of that. It’s an interesting phenomenon, but it always seems to correct itself.
Then you don’t see bandwidth issues slowing growth in the wireless sector?
Not at all. The end user really doesn’t even consider bandwidth limitations. “Gimme the product. I want to use it.”
What’s next for Aether?
We think we’ve hit a good market in wireless solutions for businesses. Look who our customers are. They’re Sun, Office Depot, Staples, Merrill Lynch, Goldman Sachs, 900 public safety agencies, 200 trucking companies. We’re not a consumer player. What’s next for Aether is, I think, we’re starting to see growth markets in homeland security, transportation/logistics and this new AOL opportunity. You’re going to see a return to double-digit growth for Aether on the revenue side. I think you’re going to see much reduced cash burn in the first quarter of next year due to all our cuts to operating expenses. And then I think you’re going to see Aether look opportunistically at acquisitions. Our desire [is] to be the dominant player in wireless solutions for enterprises. There are a lot of good buys on the market right now, and we have a lot of cash. Now we can use the bundle of cash that we have and go out and pick up the pieces of the industry.
