Proxim struggles continue despite WLAN popularity

Proxim struggles continue despite WLAN popularity

If wireless is such a hot market, why can't Proxim make any money?

That's the question on the minds of customers and industry watchers who have seen the company pile up more than $US190 million in losses during the past four quarters even as industry-wide shipments and revenue from wireless products steadily rise.

This week, when Proxim warned that it would lose more money than expected in the quarter that just ended, it also announced the resignations of chairman, Jonathan Zakin, and vice-chairman, David King. The two board members were most closely identified with Proxim's business strategy for the past two years.

It's not clear whether they were urged, or forced, out by investor and stockholder, Warburg Pincus, the New York investment company that, according to one report, holds more than 80 per cent of Proxim's not-very-valuable stock, according to one report. Proxim CFO Keith Glover did not return a phone call requesting clarification of Warburg's stock ownership.

Proxim CEO and President, Frank Plastina, was named to those posts in May, after joining Warburg a month before as the investment firm's "executive in residence."

Plastina had just wrapped up a 15-year career at Nortel Networks, where he was on a short list of candidates to head up the troubled telecom vendor.

Through a spokesperson, Plastina declined to talk about Proxim's financials, citing the Securities and Exchange Commission quiet period rules leading up to the company's quarterly earnings announcement July 22.

"They haven't done as well as might be expected," a market analyst with Infonetics Research, Richard Webb, said. "They've had all sorts of brands and all sorts of brand names, some of them overlapping. They've had a lot of products on the fixed wireless side and several different wireless LAN products. It's the mess you would expect from several companies being mixed together, which is Proxim's history."

The mess, however, has started to get cleaned up, Webb said.

"They have a much more well-defined wireless portfolio now," he said. "That's likely to help."

But almost everywhere Proxim turns, it faces entrenched, strong competition against a backdrop of free-falling wireless LAN (WLAN) hardware prices.

In traditional WLAN markets, such as logistics, warehousing and retailing, Symbol Technologies commanded near-fanatical customer loyalty, Webb said. In the general office market, which has been slow to adopt WLANs on a large scale, Cisco commanded customer attention because it already dominated the enterprise network infrastructure.

Gartner said Proxim ranked second behind Cisco Systems in enterprise WLAN hardware revenue and was fifth in unit shipments behind the likes of D-Link and Linksys Group, which were strong on the consumer front.

One Wall Street analyst, who spoke on condition of anonymity, said Proxim's legacy WLAN product lines had "fallen off a cliff" in the past one to two quarters.

He estimated that only about $US13 million of Proxim's quarterly $US40 million revenue was from 802.11 product sales. And the fixed wireless portfolio had been weakened as it went through a transition.

Emerging from this transition couldn't come soon enough for investors who at one point saw the per-share stock price dip so low that Nasdaq warned it was considering delisting Proxim.

From a high of about $25 per share in 2001, the stock eventually hit bottom at 40c. After the company's financial warning and the resignations last Monday, the stock price dropped from about $1.70 to $1.30 last Tuesday, and on Wednesday to about $1.20.

The results are striking when compared with the aggressive strategy Zakin and King launched when they merged Western Multiplex, a company selling outdoor, high-bandwidth fixed wireless products, with Proxim last year.

After that merger, Proxim bought out the Orinoco WLAN product line and brand from Lucent Technologies spin-off Agere Systems, a move that was intended to solidify Proxim's presence in the general enterprise market. Its existing Harmony line of WLAN products was phased out in favor of the better-known Orinoco label.

Last December the company announced a big reorganisation. King shifted from his duties as president and COO to vice-chairman. And Zakin temporarily took on the duties of both titles left vacant by King's transfer, in addition to his responsibilities as chairman and CEO. At the same time, four operating divisions were consolidated into two; and the board launched a search for a new president.

In May, Plastina came aboard.

Despite its troubles, observers said Proxim shouldn't be written off. The company continued to innovate and evolve its products, recently getting its 802.11g gear certified by the Wi-Fi Alliance.

"Proxim is still in the game," Webb said

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