Aether Systems Inc.'s stock slumped to its lowest point ever yesterday - down more than 99 percent from its peak - just before the Owings Mills wireless communications company delivered a lackluster earnings report for the first quarter of 2002.
Aether's stock closed down 25 cents, or 7.6 percent, to $3.06 on the Nasdaq stock market before recouping nearly all of its loss in after-hours trading as technology stocks rallied. It traded as high as $315 a share in March 2000.
A darling of the technology stock boom more than two years ago, Aether recently has been battered on various fronts: the chill in corporate investment in new information technology, the slow rollout of high-speed networks that would aid wireless transfer of data and anxieties about wireless security since the war on terrorism began.
Aether let go 225 employees this spring in a third major round of layoffs. Aether now has about 650 employees, about half of them at its headquarters in Owings Mills. That's less than half of the 1,400 employees it had roughly a year ago.
The layoffs enabled the company to cut operating expenses to $42.6 million in the quarter that ended March 31 from $63.2 million for the comparable quarter last year. The cost-cutting helped to preserve a sizable cash reserve of $477.5 million at the end of the first quarter.
The staff reductions also sapped revenue, which was $23.7 million for the first quarter, down from $30.7 million a year earlier.
Aether reported an operating loss for the quarter of $55.6 million, or $1.32 cents a share, compared with a loss of $1.2 billion, or $29.67 a share, for the corresponding period last year.
After adjustments for unusual items and accounting changes, the net loss was $34.2 million, or 82 cents a share, compared with $46.8 million, or $1.16 a share, a year ago. That was better than analysts predicted, according to a survey by Thomson Financial, and the stock gained ground in after-market trading.
"Everything was in line with what we expected," said Scott P. Sutherland, an analyst with Wedbush Morgan Securities in Los Angeles. "But they need to earn revenue while cutting expenses or it will be difficult to finance their debt. It could be trouble down the road."
"It has been a tough nine months for us as we reduced our work force, but the tough part is behind us," said David S. Oros, Aether's founder and chief executive officer. "The overriding story is that Aether's still not profitable. Until you get that, the market's not going to pay much attention to you."
The company recently was drawn into the political controversy over analysts' practices. Aether was among the stocks that Henry M. Blodget, a former Internet analyst for Merrill Lynch & Co. Inc., had recommended publicly while criticizing it privately in internal messages to colleagues. Such conflicts have drawn the ire of the attorney general in New York, among others. A class-action lawsuit was filed yesterday in U.S. District Court in New York against Merrill Lynch.
Analysts aren't publicly singing the praises of Aether, although most blame an overall slowdown in technology investment more than mistakes by the company.
"They're still one of the largest players when it comes to wireless data, but the market isn't there to help keep a lot of these companies afloat," said analyst Eddie Woo of CIBC World Markets in San Francisco. His firm dropped coverage on Aether this week because of the downturn.
Wireless data business subscribers, Aether's target market, totaled 6.6 million at the end of last year but the total wasn't growing as rapidly as expected, according to In-Stat/MDR. a technology research firm. Carriers have been slow to introduce higher-speed networks, which would speed the transfer of data through the air. And large companies such as IBM Corp. and Microsoft Corp. are muscling in with their wireless fare.
A year ago, Aether hoped to alleviate confusion about wireless data by developing software that accommodates different networks. But the company's software sales have languished, too, falling to $6 million in the first quarter this year from $11.8 million a year earlier.
"Business adoption of wireless applications has been slower than a lot of people expected and slower than companies like Aether had hoped," said Warren Wilson, an analyst with Summit Strategies near Seattle. "I don't think anybody doubts that wireless is going to be hugely important, but figuring out what the business benefits are ... the jury's still out on that."
Oros said his company will continue to increase revenue and shrink costs for the rest of the year as it awaits a better business climate. It is focusing on providing wireless data transfer for trucking companies and for law enforcement agencies engaged in homeland security.
"A return to a good economy is still a good year away," Oros said. "This is a very tough environment we're in."