The gains that the troubled Internet security firm Baltimore Technologies is making for its public key infrastructure (PKI) products in the wireless sector are not coming fast enough to offset the rate at which the company is losing money.
In fact, with just $75.7 million left in the bank, Baltimore has only six months to live at its current cash burn rate. The wolf is at the door.
Baltimore warned on Thursday that second-quarter revenue would again be lower than analyst expectations and that it would announce another round of job cuts when it reports in August. The Dublin-based firm tried to soften the blow to investors by announcing a contract to supply Finnish mobile operator Radiolinja with wireless PKI products and services. Radiolinja will use Baltimore's Telepathy wPKI product to supply Finnish banks and government departments with secure mobile payment services.
The wireless space represents an entirely new target market for Baltimore's PKI products, as operators and merchant partners seek to secure mobile payment schemes, such as providing mobile consumers with secure remotely held virtual wallets. However, even though the size of the Radiolinja deal is above Baltimore's $500,000 average, the deployment of wireless PKI technology is still at too early a stage to save Baltimore in the short term.
Meanwhile, Baltimore's main US competitor, Entrust, on Wednesday announced a $17.6m contract to supply PKI technology to the Canadian government - one of the biggest PKI deals ever. During the current economic downturn, new Entrust CEO William Conner is targeting the sectors that are traditionally strong for PKI: government, health care and financial services. Baltimore is in talks with several governments, particularly in Asia-Pacific, to supply them with PKIs. Various countries around the world give digital signatures legal status.
But Baltimore doesn't have time to wait for the markets for its products to mature. CEO Last year, Fran Rooney took Baltimore on an aggressive expansion quest, which was designed to give it a wider product range that would address more aspects of corporate Internet security and give Baltimore an opportunity to upsell its core PKI products. The company timed its expansion to coincide with the projected explosion in business-to-business commerce over Internet exchanges, which was seen by industry analysts as the natural, and potentially very profitable, home for PKI technology in e-business.
But transactions over business-to-business exchanges never reached anticipated levels, and integrating PKI technology with banking systems, back-end corporate computers and desktop applications proved to be an expensive and onerous process. The slump in IT spending has added to Baltimore's woes, and as a result its finances are now in a parlous state.
Baltimore said revenue for the second quarter would be 15.5 million pounds - 4 million less than the estimate from house brokerage Merrill Lynch. Following an operational review in May, Baltimore slashed 250 jobs; on Thursday, the company said those cuts would save it 14 million pounds annually, meaning that Baltimore will burn approximately 21 million in its second quarter. In the first quarter, Baltimore burned through 24 million on revenue of 23.7 million, down from revenue of 28.4 million in the fourth quarter of 2000.
Baltimore will announce the scale of the latest round of job cuts in August, along with further details of its cost-cutting program. With about 80% of Baltimore's costs related to its employees, the company expects total savings to surpass ?30m for the year. Even if the company meets those cost-cutting targets, cash burn would still only come down to about 14 million pounds per quarter.
Taking into account the wide range of products gained from its acquisitions of e-mail scanning firm Content Technologies and Web access control firm Nevex, brokerage CSFB estimates that PKI products will generate just 3 million pounds in revenue per quarter for Baltimore.
It seems likely that Baltimore will have to cut another 250 jobs to reach its new cost targets. Its share price was down 36% to 0.165 pounds in morning trading, leaving the foundering company with a market cap of under 136 million.
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