Surging Forward
by Melissa
Wells
Despite a rough third quarter, Speedcom Wireless pursues its
rapid-growth track with new technology.
Like
most other Americans, Michael W. McKinney, chief executive
of Sarasota-based Speedcom Wireless Corp. (NASDAQ: SPWC),
laments the tragedies that occurred in New York and Washington
D.C. on Sept. 11. He and his company have also felt the
ripple effects of those terrorist attacks, which have put
some industries in a downward tailspin and some, like Speedcom,
in an unplanned hold pattern. Prior to that fateful day,
the company’s revenues had been soaring – more
than doubling quarter over quarter and year to year. But,
for two reasons that the company could not have predicted
– the attacks and hurricane Gabrielle – revenues
for its third quarter ending Sept. 30 were expected to drop
almost 40 percent off analysts’ expectations.
The
good news is that the terrorist attacks have speeded up
the Federal Aviation Administration’s (FAA) use of
the firm’s broadband wireless communications equipment
at airports across the nation. In October the company won
a sizable contract to provide wireless networks for the
FAA.
 |
Michael
W. McKinney, chief executive at Sarasota-based Speedcom
Wireless Corp., is looking forward to continued growth
of the firm with the introduction of non-line-of-sight
technology.
Photo: Alan Ferguson |
Speedcom
Wireless makes technology that allows computers, telephones
and radio to communicate at very high speeds but without
direct, wired connections.
Shepherding Speedcom through the economic turbulence that
has followed on the heels of the attacks on the World Trade
Center and the Pentagon is founder and chief executive McKinney,
who began his career in telecommunications with AT&T.
His background lies in data and voice networking. Following
his best entrepreneurial judgment, seven years ago McKinney
left AT&T and formed Speedcom Wireless to provide wireless
broadband products to Internet service providers and private
data network users.
"I saw that there were profitable segments of the network
industry in wireless," McKinney says. "It was
a mystery to me and to a lot of people in our industry.
But I knew there was big business in the wireless broadband
area.
"Lucent Technologies was one of the first with products
(it introduced a broadband technology in 1994)," McKinney
recalls. "We created our own product set in November
1996."
A year later the firm received accolades for its technology.
Network Computer named Speedcom Editor’s Choice in
wireless products for 1997. "They do a diligent review
in the lab and out in the field based on feedback from customers,"
says McKinney. "That gave us something to crow about."
The crowing brought in the first capital investors. "We
later decided our growth is in international markets,"
McKinney says. "Drew Darby (director of international
sales) has been here since 1997 and has been a one-man show
developing contacts outside the United States."
Darby’s efforts have resulted in Speedcom shipping
product to over 60 countries and opening offices in Calgary,
Sao Paulo, Mexico City, Singapore and Shanghai. "Our
sales are at 55 percent in the U.S. and 45 percent outside
the U.S.," says McKinney. "We have plenty of business
in North America – there’s a huge need –
but we’ll gradually shift to more international sales."
At the time that Speedcom began its effort to sell internationally
annual revenues were $1 million. Annual sales have since
grown to $10.6 million. "We’re at $8.2 million
for the first half of this year," McKinney says. "If
it continues, we should hit $16 million for the year."
But hurricane Gabrielle hit Sarasota just days after the
terrorist attacks, affecting Speedcom’s ability to
maintain operations. Power failures and delayed air shipments
were the cause of a drop in revenues for the third quarter.
The company anticipates a recovery to its previous growth
curve with expected revenue of $5.4 million for the fourth
quarter ending December 31.
"Since our inception this company has had 50 percent
to 100 percent growth," says McKinney. "I think
that we’ll still do that. It depends on the market
and the state of the economy."
Speedcom’s historical growth trend has landed it on
the DeLoitte & Touche Florida High Tech Corridor Technology
Fast 50 list for three years. This year the firm ranks 17th,
up from the previous year.
The bumpy third quarter led McKinney to make top-level executive
cuts to reduce cost structure and improve profitability.
In September 2000, he had recruited Bruce Sanguinetti, an
executive with competitor BreezeCOM Inc. (Nasdaq:BRZE),
to become Speedcom’s president. Sanguinetti recently
resigned his position. "His focus was to bring in technology
and ideas to position our company for the future,"
McKinney says. "He did that. He was based in California
and wasn’t involved in day-to-day operations. Because
of that, when his job was done it wasn’t that critical."
Another Speedcom executive accomplished his objectives and
also recently left the company. Jay Wright, the chief financial
officer, was instrumental in raising capital. In August
the firm received $8.4 million from a private placement
of preferred stock with three undisclosed institutional
investors. The cash infusion helped pay off debt.
With a downturn in the stock market and the shrinking of
Speedcom’s price per share from $13 to below $2, Wright
would not be needed to help with the acquisition of other
technology firms. This strategy is on hold until Speedcom’s
stock price rises. "His first love is mergers and acquisitions,"
McKinney says. "When our stock dropped below $4, we’d
have few opportunities, if any, to acquire other companies
using our stock. He wasn’t excited about dealing with
our new focus on operations."
But Wright was instrumental last year in helping the company
go public in an unusual way. Speedcom merged with LTI Holdings
Inc., a public company based in Atlanta. LTI received 6.5
percent of Speedcom’s stock and handed over control
of both companies to Mc-Kinney. "We did that instead
of an IPO (initial public offering)," McKinney says.
In February the trading of Speedcom’s common stock
moved from the over-the-counter trading to the Nasdaq SmallCap
market. "Kaufmann Brothers gave us a ‘buy’
recommendation – triple where our stock is today at
$1.25," says McKinney. "They’re predicting
we should be at $3 in a year. Our stock has been as high
as $13 but the market has taken a beating – wireless
took a beating – and we got caught in the crowd."
The shaky market hasn’t stopped McKinney from moving
forward with the next step of the firm’s growth strategy.
Speedcom contracted with Menlo Park, Calif.-based SRI (Stanford
Research Institute) International to introduce non-line-of-sight
technology in its products. Current commercial applications
of wireless technology are restricted to operating with
signals that have no interference, akin to trying to point
a TV remote at the set while someone is standing in the
way. Speedcom has technology that doesn’t care if something
like a building is in the way. The wireless communications
technology still works at very high speeds despite the interference.
SRI is well-known in the industry for its technology developments,
some of which have affected everyone’s lives. "There
have been hundreds of major technologies developed here,"
says Scott Seaton, the company’s director of business
development. "We may be the most influential company
you have never heard of." SRI helped develop the computer
mouse and has been instrumental in moving the Internet into
the consumer limelight.
SRI’s wireless technology enables service providers
to extend their wireless network’s reach and deliver
broadband wireless access to a wider customer base. "Our
equipment can go around visual obstacles," McKinney
says. "Nobody else has this. It opens new market opportunities.
It’s not bleeding-edge technology. It has been used
by the military for six years. The future of this company
is our non-line-of-sight wireless technology."
SRI International has become a Speedcom shareholder and
taken a seat on its technical advisory board. Meanwhile,
Speedcom has been preparing to introduce this month (December)
its newest product line that incorporates SRI’s technology.
Wireless transmissions currently move at 10 or 11 megabits
per second. "With this new technology it moves at 54
megabits per second," McKinney says.
"This could be a profound impact in the world of wireless,"
Seaton says. "This ad hoc network allows you to do
less system engineering and to more quickly deploy these
systems with higher reliability than in the past. This technology
should become much more pervasive as a result."
A study published by Pioneer Consulting forecasts that the
fixed wireless broadband market will grow from $200 million
in 2000 to $4.1 billion in 2003.
"India has 990-million people and 27-million phones,"
McKinney says. "The best that businesses there can
get is limited low-speed dial-up. They have to wait four
to six months for a phone line and must pay six to 12 months
in advance to get their service installed."
Installations with Speedcom, by comparison, are a snap of
the finger. Recent customers include the FAA, which placed
orders for wireless routers to connect multiple buildings
at airports. Speedcom had installed equipment in seven airports
earlier in the year, proving that its equipment didn’t
interfere with other radio systems at the airport. Within
days of the Sept. 11 terrorist attacks, the FAA ordered
systems for another five airports.
The FAA has indicated its intention to equip at least 100
to 150 airports throughout the nation with Speedcom’s
systems, McKinney says.
That, along with new orders from Fujitsu Limited in the
Bahamas and the Greek Navy, will keep the company’s
85 employees busy after they’ve set up their new offices
at Lakewood Ranch along the I-75 corridor. Speedcom has
occupied a new 40,000-square-foot building and consolidated
from 10 locations in Sarasota.
"Despite the use of our own products, it’s still
inefficient to have all those people spread across so many
locations," McKinney says. "It’s nice to
walk down the hall and talk to somebody one on one."
