Wireless Fix

Merger hits skids in soft market

When western multiplex and adaptive Broadband announced their intention to merge in November 2000, observers saw the move as the start of consolidation in a fragmented but healthy market for fixed wireless equipment.

The future grew murky last week, as problems among competitive local providers hit vendors. Adaptive lowered its revenue expectations for the fourth quarter from $31 million to $8 million due to two deferred shipments. The company blamed the "rapid and continuing decline of the domestic competitive local exchange carrier market," in a statement.

As a result, Western Multiplex is examining its alternatives regarding the merger and expects to come up with a plan over the next couple of weeks that makes sense for both companies, said Jonathan Zakin, chairman and chief executive of Western Multiplex. "Were hoping we can do the transaction," he said.

But Adaptive, which offers last-mile access products, is facing the same general downturn as other competitors for local telecom services. "Over the past three to six months, across the board, service providers have been more conservative with their spending on equipment and software. So with that as a backdrop, what Adaptive has encountered is a reflection of whats happening in the industry as a whole," said analyst Mike Smith, managing director at Stratecast Partners.

Digital Subscriber Line (DSL) vendors are also feeling the crunch that their customers in the service provider space have been experiencing for months. Efficient Networks and Turnstone Systems, for example, were forced to issue fourth-quarter profit warnings this month, due to sluggish sales.

Efficient designs and manufactures DSL customer premises equipment, and is known for consumer-friendly DSL modems that incumbent carriers ship as part of their self-install kits. Efficient led the market in worldwide shipments of these modems, according to analysts. Regardless, the company had to downgrade because two "key" customers did not place orders in the quarter.

Turnstone makes testing and provisioning equipment for carriers that improves the efficiency of implementing DSL. Turnstone cited weak sales from independent carriers in issuing its earnings warning.

In addition to Adaptive, other wireless vendors are experiencing pain. In November, Wi-Lan, another fixed broadband wireless vendor, downgraded its revenue expectations for 2001 from the $84 million that analysts forecasted to $50 million.

"The weakness in CLECs [competitive local exchange carriers] and ISPs [Internet service providers] has led to slower deployments," Zakin said. "We dont believe thats a long-term problem, but in the short term, that segment has been hurt."

Many believe the fixed wireless broadband market may fare a bit better than the overall CLEC market.

"Everyone has been hurt, but people are a little more optimistic about fixed wireless. They still have access to capital," said James Mendelson, an analyst at The Strategis Group.

For example, fixed wireless service provider Teligent secured $250 million in financing, which will fund it through the end of the year.