Dossier: Proxim Corp.

By any measure, 2003 was a breakout year for many wireless-communications companies. For Proxim, it was a year of trying to put the pieces back together.

Proxim replaced its chief executive officer, closed two out of three manufacturing facilities, and cut its workforce in half-to 330 workers. The wireless local-area network equipment company also continued a string of losing quarters-for the second and third quarters of 2003, it lost a total of $84 million on revenue of $70 million.

Meanwhile, other wireless-communications vendors saw unit sales increase. In the third quarter alone, wireless-hardware unit shipments were up 22% over the previous quarter, according to market watcher In-Stat/MDR.

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So if wireless is going gangbusters, why does Proxim continue to post losses?

Analysts say the company’s challenges include the fact that wireless networking has become a commodity and that, unlike many competitors, it doesn’t have a wireline offering. “[Wireless-equipment] prices have just plummeted, so there’s not a huge profit margin-and there’s no significant differentiation between the players,” says Tim Scannell, president of Shoreline Research, a research and consulting group. For instance, wire-less access points, which connect wireless devices to a wired network, cost as much as $500 two years ago but now go for about $150.

Ken Haase, Proxim’s director of product marketing, acknowledges that margins are getting squeezed, and says the company has staked its future on “convergence”: seamlessly uniting wireless voice and data transmissions from outdoor to indoor networks.

That plays to the company’s strength. Proxim is an amalgam of three wireless-equipment vendors. In March 2002, Western Multiplex, a supplier of inter-building wireless-networking products, acquired Proxim Inc., a struggling provider of wireless gear for consumers and businesses. The combined company took Proxim’s name, then in June 2002 purchased the Orinoco line of adapters and access points from Agere Systems.

The reborn Proxim Corp. tried to cherry-pick the best equipment of its forebears, and now offers customers both indoor and outdoor wireless gear that conforms to Wi-Fi, the industry’s term encompassing the 802.11a, b and g wireless-networking standards.

Some organizations have overcome hesitation to embrace Proxim’s offerings. At the Berklee College of Music, for example, director of networking and telecommunications Roy Galang says the school has deployed just half of its planned 200 access points because of early concerns about complexity that soon proved unfounded. “We didn’t know how easy this would be,” Galang says of Berklee’s Proxim implementation.

The Baptist Health System of East Tennessee started using Proxim Inc.’s RangeLAN2 wireless products six years ago and is in the process of switching over to Orinoco access points.

Rick Simpson, the hospital group’s senior system specialist, says he briefly looked at upgrading to Proxim’s now-discontinued Harmony line of access points, but those units, he says, were “dumb”: They couldn’t be individually programmed or maintained. They also relied on a single controller component; if that went down, so did every unit in the network. But around that time, Proxim began offering the Orinoco units, which Simpson says are more intelligent and fail-safe- a crucial consideration, because the availability of the network (and the medical data flowing over it) directly affects Baptist’s patient care.

“Even when the [wired] network went down, the wireless segment has never gone down,” Simpson says. “It’s one of the most stable systems we’ve ever had.”

Proxim’s next major technology hurdle is Maestro, a project being developed in conjunction with Motorola and Avaya. Due to be rolled out this year, Maestro is supposed to deliver uninterrupted outdoor-to-indoor cellular phone service over a secure, proprietary network.

But all of Proxim’s product developments have been in the wireless space. And market watchers say the company is at a strategic disadvantage to major competitors because it doesn’t sell wireline networking systems such as Ethernet switches.

According to Gartner analyst Ken Dulane, many enterprise customers want their wireless setup to be an extension of their core wired network instead of assembled parts. “That gives a big leg up to the incumbent vendors,” Dulane says, “and Proxim doesn’t have a business in that area.”

It also doesn’t have the profits of larger, healthier competitors like Cisco, which recently posted year-end net income of $1.1 billion.

The Company

Headquarters: 935 Stewart Drive, Sunnyvale, CA 94085
Phone: (408) 731-2700
Employees: 330
Business: Offers wireless-communications equipment for local- and wide-area networks.
Founded: 1979 (as Western Multiplex)
Major Investors: Warburg Pincus and Broadview International jointly own 25% (with options to increase their ownership stake to 58%).
Top Executive: CEO Frank Plastina was most recently with Warburg Pincus; he spent 15 years at Nortel Networks.
Financials: Revenue of $109.9M; net loss of $97.7M (first nine months of 2003).
Main Products: Orinoco access points and gateways for indoor use; Tsunami bridges to connect multiple buildings.
Market Share: 8.9% of the $1.8B enterprise market for wireless local-area network equipment (Synergy Research Group, 2002).
Competitors: Cisco Systems; D-Link Systems; Symbol Technologies; 3Com.

The Technology

Wireless networks in the workplace typically have a maximum range of only about 300 feet. So what can a technology department do to extend its network’s reach, short of new wire?

Proxim’s answer to this riddle is to let its Orinoco access points act as “repeaters” that catch and resend wireless transmissions in a point-to-point fashion, like a cutoff man relaying an outfielder’s throw to home plate. That allows a wireless local- area network to extend into areas without Ethernet wiring, such as an open parking lot.

The key is to avoid signal congestion, so the Orinoco access points have a dual-slot configuration, which allows them to simultaneously send and receive signals. Like the “In” and “Out” doors of a busy restaurant kitchen, the two slots function independently: A departing packet of data isn’t hogging the only point of entry as another packet comes whizzing by. Instead of needing to wait, the arriving data comes in through the second slot.

A different approach-promoted by Cisco, Intel and others-is a “mesh” wireless network architecture in which multiple nodes act as routers, relaying data to their nearest neighbor. Proxim, however, points out that this multipoint design is apt to function less efficiently than its own point-to-point repeaters. That’s because in a mesh, many nodes are contending for the same spectrum, and that interference degrades overall performance.

Reference Checks

Berklee College of Music
Roy Galang
Dir., Networking and Telecommunications
(617) 747-2048
Project: Along with five Tsunami QuickBridges, the Boston school has plans for as many as 200 Orinoco access points (APs) for faculty and student use.

Verizon Communications
Michael C. Bolduc
Dir., Products and Services
(972) 465-5500
Project: Telecom company’s broadband unit had nearly 500 Orinoco 2500s installed in New York payphones for public Internet access at the end of 2003.

Baptist Health System of East Tennessee
Rick Simpson
Senior System Specialist
(865) 632-5873
Project: Knoxville-based regional hospital group has 250 Proxim APs, from six-year-old RangeLAN2 units to new Orinocos.

High Performance Wireless Research and Education Network
Hans-Werner Braun
Principal Investigator
(760) 788-6687
Project: University of California facility has deployed about 20 Tsunami bridges to connect rural areas of San Diego County.

Vail Resorts
Vicki Silvera
VP, Information Technology
(970) 845-2590
Project: Luxury-ski-resort operator used Proxim for a handheld wireless system several years ago, but has since switched over to equipment from Symbol Technologies.

United Nations Dept. of Peacekeeping Operations
Jason Mayordomo
Chief of I.T.
[email protected]
Project: Has deployed Proxim units in war- ravaged countries, such as Sierra Leone, where wireline systems would be impractical or impossible.