Openwave Opens With A Thud, But Better Days Are Ahead

America Online and Time Warner can only look on with envy.

Less than four months after announcing their $6.4 billion merger, wireless software developer Phone.com and Internet messaging software vendor Software.com on Monday became Openwave Systems. The new company began trading Monday under the Nasdaq symbol .

AOL and Time Warner, in interminable contrast, have had to cool their heels for more than 10 months while government regulators in the U.S. and Europe strong-arm the two companies for concessions presumably aimed at ensuring fair competition before signing off on their proposed union.

Of course, the AOL-Time Warner deal, valued at $129 billion, would create the largest digital entertainment company in the world, hence the protracted regulatory interest.

While of lesser immediate magnitude, the Phone.com-Software.com merger creates a potential wireless data powerhouse at a time when investors are anxious to identify and bet on winners in the highly touted wireless arena.

Indeed, when announced in early August, the agreement was well-received by the market. Phone.com shares rose 17% in one day, while Software.com climbed 32%.

In its first day on Wall Street, however, Openwave was having a rough go of it, with shares down 13.4% to $76 by early noon Monday, despite optimistic, revised earnings and revenue forecasts from company executives.

A great part of OPWV's stumbling debut certainly could be attributed to Monday's market nosedive. The Nasdaq was down 4.6% by early afternoon, while internet.com's Internet Stock Index, or ISDEX, had plummeted 7.0%.

But investors shouldn't let the current market malaise obscure the fact that the merger creating Openwave makes sense, unlike so many other Internet-related marriages (Exhibit A: Excite and @Home). Software.com's messaging software for e-mail and unified messaging is a perfect fit for Phone.com's wireless services and voice portals.

As Openwave, the company will be a formidable and flexible provider of unified voice-data communications software for the wireless carrier market and network service providers, selling products that will make mobile phones and other handheld devices Internet-enabled.

The company also has a well-respected, marque CEO in Don Listwin, former head of Cisco Systems' service provider and consumer division. Listwin predicted in a conference call on Monday that OPWV's revenues in calendar year 2001 will be $580 million, versus earlier internal forecasts of $515 million.

Listwin also says Openwave should be profitable on an operating basis by the end of next year's first quarter. Until then, I think investors may be cautious about OPWV. But a profitable market leader in a high-growth sector such as wireless is the kind of company that will attract support in the long-term.