Aether Systems Attacks Wireless Data Market

Aether Systems Attacks Wireless Data Market<@VM>Birth of a Wireless Integrator

Bill Davidson

By William Welsh, Staff Writer

Aether Systems Inc., one of Wall Street's latest darlings, is preparing to attack the state and local wireless data market with two acquisitions of key wireless software companies in the past three months.

Aether vaulted into the mobile government market by purchasing Cerulean Technology Inc. of Marlborough, Mass., in August for $150 million, and Sunpro Inc. of Zillah, Wash., in September for $10.8 million. The purchases were financed from $1.4 billion raised in March through a secondary offering of stock.

The stock market turmoil in April helped set up the acquisitions, said Bill Davidson, Aether's corporate vice president for wireless products.

"We were able to get good companies, which a year ago might have commanded a higher price than today, at what we feel are good prices," he said.

From Sunpro, Aether of Owings Mills, Md., picked up software used by more than 2,000 fire and rescue teams. From Cerulean, the company acquired wireless software and solutions used by police officers and firefighters in more than 700 public-service agencies throughout the country.

Before the acquisitions, Sunpro and Cerulean had been working closely together on a new suite of integrated mobile solutions, according to Aether.

Through these acquisitions, Aether has assimilated a wireless platform and solution set that might be applied to "any organization that does any kind of field data collection," said Davidson.

The market for mobile data products in the government is expected to hit 3.7 million users and more than $1 billion in products and services by 2003, according to industry estimates and the Bureau of Labor Statistics.

"We view the mobile government marketplace as a fantastic opportunity," said Davidson.

Although public-safety departments have been the early adopters of wireless mobile technology, other government sectors are beginning to employ mobile devices. Among these are public works, municipal services, health and human services, criminal justice and municipal utilities, according to analysts and industry officials.

"There are different related markets within the government that Aether can go after," said Riyad Said, a managing director and senior analyst with investment banking firm Friedman, Billings, Ramsey of Arlington, Va.

The company's revenue expectations are $42.7 million in 2000, $100 million in 2001 and $210 million in 2002, said Greg Abel, Aether's director of corporate communications. However, the revenue estimates do not include some assets, notably Cerulean's performance and contribution, Abel said.

Aether expects to go "cash positive" by the first quarter of 2003, said Davidson, meaning that it would have positive earnings before taxes, depreciation and amortization.

Aether closed at $87 a share Oct. 13, with a 52-week high of $345 and low of $41.

Davidson said more than $1 billion remains for additional mergers and acquisitions. This billion-dollar cash reserve "distinguishes us from other competition in this space," he said.

Aether's aggressive acquisition strategy and rapid expansion into new markets has caught the attention of Wall Street analysts. Since it went public in October 1999, Aether has acquired eight companies. This has allowed it to expand from the financial services sector to other sectors, including health care, education, transportation logistics, sales force automation and public safety.

Although its projected revenue is relatively small, Aether already has 17 analysts following its stock as the company moves quickly to grab market share.

"We will see others target the mobile government market, but Aether is taking advantage of its first-mover strategy," Said said.

While Aether is pulling ahead of smaller wireless companies, it eventually may encounter competition from large integrators such as Andersen Consulting of Chicago; Electronic Data Systems Corp. of Plano, Texas; and IBM Corp. of Armonk, N.Y., according to analysts.

In 1998, IBM established a division that provides wireless products and services similar to those Aether provides to its private-sector and government customers. IBM dubbed the wireless work it performs, "pervasive e-business," in reference to the extension of the Internet through wireless hardware and software into all aspects of business and personal activity, said Jon Prial, IBM Pervasive Computing Division's director of marketing and strategy.

"IBM Global Services has a tremendous investment and thousands of resources dedicated to this pervasive space," he said.

IBM provides solutions to more than 400 government customers in areas such as public safety, health and human services and criminal justice, said Prial. Most of these are still in pilot projects.

In 1999, the division had total sales revenue from both the public and private sector of more than $250 million.

For now, though, Aether appears to be in the lead, primarily because of the acquisition of Cerulean.

"We think they're dominant," said Christopher Giordano, an equity research analyst with investment banking firm Merrill Lynch and Co. Inc. of New York. "No competitor has the breadth across as many vertical markets or as fully funded of a business model [as Aether]."

Giordano believes that in the future Aether will make even more acquisitions than it has in the past year.

Davidson would agree. "If there is a good vertical market that we want to target then we will find a leader in that space and either partner with it or acquire it, whichever makes the most sense," he said.

Whether Aether succeeds in the new markets it is entering depends partly on the extent to which wireless data is being used by customers in these different sectors, said Giordano.

The following acquisitions were made by Aether Systems Inc. from September 1999 through October 2000.Riverbed Technologies
Location: Vienna, Va.
Value: $1.1 billion
Capabilities: Mobile computing software.
Cerulean Technology Inc.
Location: Marlborough, Mass.
Value: $150 million
Capabilities: Public safety software applications.
Location: Bethesda, Md.
Value: $12 million
Capabilities: Wireless financial services products.
Location: Copenhagen, Denmark
Value: $85 million
Capabilities: Financial services in Europe.
NetSearchLocation: Scottsdale, Ariz.
Value: $25 million
Capabilities: Merchant notification systems for e-commerce.
Technology Inc.
Location: Marlborough, Mass.
Value: $150 million
Capabilities: Public safety software
Sunpro Inc.
Location: Zillah, Wash.
Value: $10.8 million
Capabilities: Fire and emergency medical software and solutions.
Motient Corp.'s Retail Transportation Division
Location: Reston, Va.
Value: $45 million
Capabilities: Transportation tracking and communications software and solutions.

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