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iPass Q2 profits slide 26.7 per cent

Tricky-to-judge shift from dial-up access to broadband

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Enterprise-oriented remote access provider iPass this week reported second quarter income fell year on year to $3.3m (five cents a share) from $4.5m (seven cents a share) a year ago.

Revenue for the three months to 30 June 2005, totalled $43.1m, down 2.3 per cent on Q1's $44.1m, but up 6.7 per cent on Q2 FY2004's $40.4m.

Most of the company's revenues arose from its traditional dial-up connectivity offering, though the contribution fell from 85 per cent in Q1 to 82 per cent. Service fee revenues rose 12 per cent sequentially, to $5.7m, underpinning the company's move to sell security services on top of connectivity.

That shift has been driven by greater use of broadband connections, such as Wi-Fi hotspots and fixed Ethernet links, and revenues from these jumped 47 per cent sequentially and 367 per cent year on year to $2.1m. iPass said broadband usage is growing, from 27,000 users in March 2004 to 35,000 in June 2005, an increase of 29.6 per cent.

Finding the point where growing demand for broadband connectivity and improved mobile security counter the decline in dial-up revenues has proved tricky, iPass Chairman and CEO Ken Denman conceded.

The company has consistently touted the size of its aggregated global network of Wi-Fi hotspots, which now extends to over 21,000 active sites. In addition, its customers can utilise 2,000 fixed broadband connections around the world. Clearly, the cost of adding these sites to the broader network hasn't yet been covered by the fees generated by corporate users as they switch from dial-up.

Looking ahead, iPass said its expects Q3 revenue to fall between $41m and $44m, with earnings in the range of 3-5 cents a share. In short, revenue will likely rise a little, while net income will possibly fall. ®

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