| Abstract: | In an effort to return to the black, the company will discontinue its unprofitable software and services business and focus on its hardware offerings. |
| Keywords: | M2M, wireless network, machine to machine |
Feeling the effects of a fragmented, emerging market, RF Monolithics Inc., a maker of machine-to-machine (M2M) network technology, is exiting the software and services business to focus its product strategy on hardware components and modules for OEMs and systems integrators.
The news, announced today, will result in impairment and restructuring charges of approximately $3 million in the current quarter and a 17% reduction in workforce, the company said. However, RFM anticipates that its actions will result in a savings of approximately $3 million in fiscal 2009.
The strategy is an attempt to put the company back on track financially. In the first nine months of fiscal 2008, ended May 31, 2008, the company reported a net loss of $1.4 million on sales of $43.5 million. While not favorable, the results represent a positive step forward compared with the same period last year, when RFM reported a net loss of $5.7 million on sales of $41.6 million.
The company cited economic pressure as the primary culprit in project delays and the poor performance. It also singled out its Wireless Solutions business — which delivers turnkey solutions by integrating hardware and software — as not growing at a desirable pace.
In 2006, RFM acquired Aleier Inc., a provider of enterprise asset management (EAM) and computerized maintenance management system (CMMS) software and services. The goal then was to become a solutions-driven M2M provider. However, with the software and services portion of the business consistently losing money, that vision needed to change, the company said.
As part of the new M2M strategy and cost-savings initiatives, the company will discontinue its Aleier software and services business. RFM’s Wireless Solutions business remains intact, but will continue without the software and services play. RFM will partner with applications providers to provide end-to-end services where needed, the company said.
“I wouldn’t say it is a huge shift,” said Farlin Halsey, RFM’s vice president of marketing in an interview with Managing Automation. “Obviously, our end goal when we purchased Aleier wasn’t to discontinue the sale of that product in two years, but it was to go ahead and learn the M2M space. What we figured out is that RFM, as a company in the M2M market, is very much a hardware [provider].”
RFM President and CEO David M. Kirk echoed those comments in a prepared statement. “In reviewing the M2M market, we have determined that some segments of it are moving forward faster than others and that some opportunities lie more within our core competency than others … Therefore, we have refined our focus in this market to hardware opportunities based upon our technical and market expertise, and away from software and service opportunities,” he said.
To that end, the company told investors earlier this summer that it would right-size the business in order to return to profitability. Today’s announcement put those words into action.
“We have conducted a thorough evaluation of the opportunities and cost levels in our various businesses and have made the hard decisions to bring them into proper balance,” Kirk said. “These actions, although never pleasant, are necessary and will facilitate our return to profitability and positive cash flow in early calendar year 2009.”
While discontinuing a business may appear disruptive to the company and its customers — which RFM said it will continue to support through contractors or other providers — it may actually be the best way to influence an immature M2M market that is highly fragmented, specialized, and still extremely complex, analysts said today.
“It’s a market in its embryonic stage, [meaning it’s] ill-defined; there is no established leader and no lead consumer,” said Dick Caro, CEO of CMC Associates in an interview.
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