re: Wireless Week on Openwave Systems
>> The Wireless Internet's Once Shining Star
At one time the brightest star in the mobile data sphere, Openwave Systems isn't glimmering quite so brightly these days as it struggles back toward profitability.
By Brad Smith
August 5, 2002
Wireless Week
If you were to search for the rising star of the wireless Internet, you'd be hard-pressed to find a brighter one than Openwave Systems. But now that star has lost a bit of its shine, with its stock falling below $1 for the first time in its short history.
It's a startling wake-up call for the wireless Internet industry. After all, many analysts look to Openwave as a sort of bellwether company for how the wireless Internet is doing overall. Openwave, through its Unwired Planet predecessor, created the WAP browser that is the standard on nearly every phone on the planet today. With few current-generation alternatives, WAP–despite its many critics of version 1.1–remains a crucial part of the wireless Internet and likely will for some time.
Openwave was created on Aug. 9, 2000, out of the $6.4 billion merger of Phone.com (the post-initial public offering name for Unwired Planet) and Software.com. Donald Listwin, then executive vice president of Cisco Systems and heir-apparent for Cisco's top job, was hired as president of the new company.
When it began, the combined company had a market capitalization of $11.5 billion, with its shares selling in excess of $125. That market cap has eroded since to $163 million as its shares fell below $1 on July 25.
Where Listwin once was able to brag that Openwave skyrocketed to profitability faster than analysts predicted it would in December 2000, he is now talking about "strategic survival" in an imploding telecommunications world. "Our biggest challenge is to manage our way back to profitability as these massive industry transitions are going on," Listwin said in a recent interview. By strategic survival, he means "continuing to be relevant and helping carriers move forward. (Being) a single independent software company that can help the industry through this transition."
In a conference call with analysts to discuss the company's latest earnings report, Listwin warned that the next 12 to 18 months will be rocky ones for both Openwave and the wireless data industry in general.
Wall Street Whammy
What caused Wall Street to hammer Openwave's stock was its announcement in early July that it would not meet earnings expectations, followed by its July 23 financial statement and advice that it would burn through $25 million to $30 million in cash during the current quarter, up from $3.4 million in the prior period. The company needs the cash for research and development, marketing, administration and other operational expenses.
The two July announcements created a double whammy for the share prices, which fell more than 50 percent to start the month and another 27 percent at the end. Share prices have fallen more than 80 percent since the first of the year.
The company reported a net loss of $474.8 million for the quarter ending June 30, compared to a net loss of $142.2 million a year earlier. Revenue for the quarter was $70.1 million, down from $145.9 million in the same quarter in 2001.
Although Openwave cited delays in finalizing contracts for a 47 percent decline in bookings for its core business, Merrill Lynch analyst Tal Liani worried in a research note that the delays might actually be postponements.
Liani said two of Openwave's important European carriers, TIM in Italy and Telefonica in Spain, had signed contracts with competitors; Sprint PCS has selected Hewlett-Packard as its data platform vendor; there is pricing pressure on WAP gateways; and widespread commercial deployment of multimedia messaging and instant messaging–two of Openwave's key future products–are still a year away.
"We have substantial concerns that Openwave is gradually losing its market position, while we can't see anything new in the portfolio that could change this gloomy destiny," Liani said.
While Openwave's strongest presence is in Japan with J-Phone and KDDI, Lehman Brothers says the company hasn't been able to take part in KDDI's recent CDMA 2000 1XRTT success because its contract is fixed. Verizon and Britain's mm02 continue to be important customers, Lehman says.
Noting Openwave's recent contract win for its IM platform with Brazilian CDMA carrier Telesp, Lehman says the company's best opportunities in the short term lie with CDMA carriers as 1X rollouts continue.
Losing To Bundlers?
Listwin said the positive side of the telecom downturn was the shrinking number of competitors. But the negative is carriers are buying more bundled solutions.
"There is a lot of bundling behavior," he said, where large vendors will provide software for free if a carrier will buy network gear. "That's hard to deal with but shows how important partnerships are to us. We can't be consolidated out."
Listwin apparently was talking about Ericsson, which has bundled WAP functionality into its MMS platform and won contracts with the strategy. That effectively takes Openwave out of two pieces of bundled business–WAP and MMS.
Although Openwave as a stand-alone can't bundle in the way that Ericsson can–with switches and routers–it does try to fight that kind of strategy with its multi-vendor support. Listwin said the company won a contract with Cingular Wireless, knocking out Nokia's WAP server, because Openwave supported products from two of Cingular's other vendors, Ericsson and Siemens.
When it comes to enhanced services such as photo messaging, he said, Openwave provides carriers with the ability to store photos at the network level as well as providing the relay technology. Some competitors, he said, only provide the relay. "Network-centric technologies add value for the carriers," he said, citing the examples of e-mail and voice mail.
Openwave post-merger also has done its share of acquisitions, most recently buying up location-based services company SignalSoft and the Java downloading technology of Ellipsus Systems of Sweden. Those acquisitions were driven by Openwave's desire to expand the portfolio it markets to carriers.
Listwin is bullish about the future, believing that data and not voice is the key to industry growth. And he doesn't believe the future has to wait for 3G networks because 2.5G technology provides the packet data experience that is necessary.
Internet Protocol-based voice mail can save carriers backhaul costs and create more valuable services for subscribers, he said, including the ability to have two-way or three-way voice mails. In addition, much is riding on the adoption of WAP 2.0, a more palatable version of the technology with "push" capabilities vs. the earlier version's "pull." WAP 2.0 also is designed to take advantage of higher bandwidths and be more application-developer friendly.
Although Openwave's fortunes, as well as the industry's, have fallen on tough times, Listwin expects to see a new era. "Historically, the companies who weather these tough times will be the few who emerge as a new category leader in the future," he said.
If that happens, Openwave may be known as the "once and future king" of the wireless Internet. <<
- Eric - |
