Proxim Is Still In the Game ?
Proxim Struggles Continue Despite WLAN Popularity
By John Cox
Network World, 07/14/03
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 $190 million in losses during the past four quarters even as industrywide shipments and revenue from wireless products steadily rise.
Last 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 holds more than 80% of Proxim's convertible preferred stock, in addition to 22% of the outstanding common stock. Preferred stock gives the holder a claim on earnings, and typically also on assets, prior to the claim of common stockholders.
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, 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," says Richard Webb, a market analyst with Infonetics Research. "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 says.
"They have a much more well-defined wireless portfolio now," he says. "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 commands near-fanatical customer loyalty, according to Webb. In the general office market, which has been slow to adopt WLANs on a large scale, Cisco commands customer attention because it already dominates the enterprise network infrastructure.
Gartner says Proxim ranks second behind Cisco in enterprise WLAN hardware revenue and is fifth in unit shipments behind the likes of D-Link Systems and Linksys, which are strong on the consumer front.
One Wall Street analyst, who spoke on condition of anonymity, says Proxim's legacy WLAN product lines have "fallen off a cliff" in the past one to two quarters. He estimates that only about $13 million of Proxim's quarterly $40 million revenue is from 802.11 product sales. And the fixed wireless portfolio has been weakened as it goes through a transition.
Emerging from this transition can'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 40 cents. After the company's financial warning and the resignations last Monday, the stock price dropped from about $1.70 to $1.30 on 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 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 reorganization, with King shifting 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 say Proxim shouldn't be written off. The company continues to innovate and evolve its products, recently getting its 802.11g gear certified by the Wi-Fi Alliance.
"Proxim is still in the game," Infonetics' Webb says.
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