Proxim Takes 2Q Earnings Hit

The timely capital investment for the wireless networking vendor, based in Sunnyvale, Calif., comes in the form of a $30 million cash infusion from investors including Warburg Pincus and Broadview Capital Partners.

Frank Plastina, Proxim president and CEO, told investors during a Tuesday afternoon conference call that the cash would provide the liquidity and capital required to support the company turnaround.

Plastina said the company has taken significant steps in a short period of time and is focused on continuing to deliver products aimed at the convergence of Wi-Fi with wired and wireless networks.

"It's one of the few areas of networking that has some life to it, and we're excited about the potential," said Plastina, adding that Proxim is converging its LAN and WAN technologies onto a single platform so that it can be configured for indoor or outdoor use.

For the quarter ended June 27, 2003, Proxim reported a loss, before charges, of $4.7 million, or 4 cents per share, on sales of $34.8 million. That compares with income of $400,000, or break-even per share, on sales of $45.2 million for the same quarter last year.

Those results are in line with Wall Street predictions of a loss of 4 cents per share, according to Thomson First Call. When including charges such as $12.5 million in restructuring charges, Proxim reported a loss of $48.7 million, or 40 cents per share.

Proxim stock was trading up about 3 cents, at $1.26, at the end of day trading Tuesday, following the earnings release. Proxim's stock took a 27 percent hit early last week as two board members--Jonathan Zakin, chairman of the board, and David King, vice chairman--resigned as a second-quarter earnings warning was announced.

Second-quarter restructuring charges include layoffs, office consolidation, contract terminations and a provision for excess and obsolete inventory for discontinued products. Other charges include about $1 million in litigation expenses related to patent infringement litigation with Symbol Technologies, Holtsville, N.Y.

Plastina said Proxim would reduce its workforce to 330 employees from 430 employees by the end of third-quarter 2003. The company is also consolidating its research and development from six sites into two sites in Sunnyvale, Calif., and Bangalore, India. Customer operations would also be consolidated from two sites to one, said Plastina.

May sales outstanding decreased from 77 days in 1Q 2003 to 71 days in 2Q 2003. Plastina said Proxim is strengthening OEM relationships with telecom and IT equipment vendors, as well as "energizing distribution channels and adding value-added resellers."

Plastina said Proxim is focused on providing a value proposition that "spans wireless solutions for public hot spots, voice and data backhaul, enterprise campuses, security and surveillance, last-mile access and mobile professionals."

Proxim reported Tuesday its buyout of a $27 million lease obligation related to a building in Sunnyvale, Calif., in exchange for a $6 million payment, and assumption of ownership of the building and $3.2 million mortgage. The transaction is expected to close during 3Q. Proxim intends to sell the building and the net estimated costs of the purchase and sale would be offset against the available restructuring reserves, according to the company.

Plastina said he would provide a restructuring update in about six weeks.

"We feel quite comfortable that we would be cash flow break even or operating positive in the fourth quarter this year," said Plastina.