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WLAN equipment maker Proxim has warned of disappointing first quarter results, dashing hopes of an early emergence from its recent financial troubles.

The company's CEO, Frank Plastina, blamed lower than expected revenue from carriers and problems with transitioning products. Proxim now expects Q1 revenue to be in the range of $25m to $27m, well below the $37m it had originally predicted, with a pro forma loss of 4-6 cents per share rather than 1-3 cents.

Backlog has almost doubled, from $6.3m in the fourth quarter of 2003 to $12m - although this will eventually filter through into improved sales - while the company now has a cash reserve of $16.6m, compared to $21m three months ago.

The main problems seems to lie with carriers consolidating and making slow decisions on equipment, hitting the outdoor broadband wireless business that Proxim acquired in 2002 from Western Multiplex and which was supposed to counterbalance the slow market for its core products in enterprise WLANs.

Last month, the company announced the latest plans for this range, with a voice-optimised WLAN switch, the Orinoco Switching System, but this has yet to affect revenues, and it has experienced difficulties with its channels in moving from its older AP-2000 access point to the newer AP-4000.

Disappointed

"Although we are disappointed with this revenue performance, we believe that the seasonal and product transition issues are addressable," said Plastina. "We are encouraged by our strong end of quarter order backlog and effective cash management."

After a difficult 2003, Proxim was in bad need of a decent quarter to cheer its investors and customers. Although it still has a promising product roadmap, including the voice switch, a major VoWLAN joint development with Motorola and Avaya, and plans to move swiftly into WiMAX, it needs to generate solid revenue and cash from its current portfolio too.

It was shaken by financial problems last year and in July board chairman Jonathan Zakin and vice chairman David King - the men who engineered the Western Multiplex merger with a view to catapulting Proxim into the forefront of wireless networking - resigned in anticipation of poor second quarter results. In that Q2, revenues fell 23 per cent to $34.8m and losses increased sixfold to $47.1m, far worse than analysts had expected. In the four quarters before that, since the merger, Proxim had lost over $190m on revenues of $160m and narrowly escaped Nasdaq delisting.

Aggressive strategy

This is despite an aggressive and apparently logical strategy from Zakin and King - targeting the boom WLAN market at an early stage, buying Agere's Orinoco WLAN range to bring a big name brand to the company, making a radical reorganisation late last year and then branching into broadband wireless with the Western purchase. But the various product brands were integrated too slowly and confusingly; the big names started to muscle in on the WLAN market - Cisco in particular; the enterprise WLAN market, Proxim's main strength, stalled; Wi-Fi equipment prices went into freefall.

Plastina has now been at the helm for a year. He joined from investment firm Warburg Pincus, which at that time owned 86 per cent of Proxim's stock. His priorities were to increase its WLAN market share to maintain its second rank in enterprise Wi-Fi sales (behind Cisco) and to focus on high margin product areas; and to take the fixed wireless ranges through their transition period rapidly. The product announcements, customer stories and order backlog are showing signs of success in these objectives, but there is still a way to go to achieve financial stability in a cut throat market.

Proxim has about 20 per cent share of the enterprise WLAN market, or 25 per cent including OEM sales through partners such as Motorola and Fujitsu - trailing Cisco's 34 per cent but ahead of Symbol on 15 per cent and Avaya on 10 per cent. The company expects its share of a larger market in 2004 to remain stable or fall slightly with the increasing levels of competition.

© Copyright 2004 Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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