Looking to do a little empire-building, YDI spent some of its cash reserves on a floundering industrial wireless networking manufacturer this week.

by Jim Wagner ISP-Lists Managing Editor [May 24, 2001]

Wireless data equipment manufacturer and reseller Young Design, Inc. is spreading its spectrum of wireless goods and services by acquiring Zeus Wireless, Inc. The deal, a cash buyout for an undisclosed amount, brings onboard Zeus' extensive frequency hopping spread spectrum (FHSS) line of mission-critical network applications into YDI's wire-free portfolio.

Nearly all outstanding equity shares have been bought up and YDI officials expect to own 100 percent of the company in the coming months. Zeus will keep its name, if not its board of directors, operating as a subsidiary of YDI.

Technology fit
YDI, known for its products and knowledge in the wireless Internet service provider (WISP) field, was looking to expand outside wireless POPs and into different markets that fit its technology in the license-free, mainly 2.4GHz wireless data arena.

Zeus, focused on developing and manufacturing wireless telemetry networks for mission-critical applications for companies like air-conditioning giant Carrier and Siemens, didn't have the funds to protect themselves from a buyout.

Zeus, like many others in the industry, was riding the Internet bubble of 1999/2000. With $18 million in venture funding, company officials beefed up their staff to 40 and got ready for the expected flood of orders for its increasingly popular Bluetooth product line.

That never happened, said Michael Young, YDI president. Zeus continued to burn capital and never did reach a point where it was making a profit, which put the company deeper and deeper in the red. A perfect time, he said, for a buyout by YDI.

"That was one of the problems with Zeus, they were gearing themselves up with sales, staff and admin people for high volume, they spared no expense," Young said. "And then the volume just didn't appear.

"Quite frankly," Young said, "Zeus Wireless was ready to hit the wall and we came in and bailed them out."

Smart money
YDI immediately cut the staff at Zeus from 40 to just under ten, a move Young said will have the company running profitably in a couple months. What Zeus brings to the table is its FHSS technology, said Young.

"We do high-speed WLANs and wireless Internet connectivity, this is like an appendage to that," Young said. "It's in the same frequency band with the same technology but with slower radios that have higher performance, very sensitive receivers and very powerful transmitters."

"Zeus has a 2.4 GHz FHSS radio modem, low data rate with high penetration rate meant for the industrial applications like heating controls," Young said. "Companies like Carrier and Siemens are looking for a reliable, license-free robust communications to control these devices, without having to run wires to them. It's a very vertical market."

The acquisition is the first in what could be several acquisitions to branch out YDI's product line, Young said.

"We have been in several negotiations for acquisitions, this was just the first to come to pass," Young said. "And we intend to do acquisitions in the future with other companies that are complimentary to our technology."

With between $15-$20 million in sales last year, the wireless equipment company has been able to avoid looking for money from the venture capital or equity funding firms, instead paying for Zeus' acquisition with its own cash.

Bed hopping
While the union of Zeus with YDI appears odd at first glance, the deal actually is an example of fortifying a business by embracing future technological needs, today.

The energy crunch on the West Coast is not going to go away—it's going to spread. Utilities are looking for a better way to control the flow of electricity and consumers are looking for ways to economize their electric use at home—wireless chipsets hold the key for both ambitions.

Whether it's a meter reader completing monthly rounds, ConEd controlling the ebb and flow of its power grid, or Web access that allows consumers to turn on an air conditioner while on their commute home—wireless works. FHSS technology is a smart system that YDI is getting out in front of with a smart buy on Zeus.

At second glance, this deal is not a matter of YDI hopping from one popular spread spectrum system to another. It is a solid acquisition that sets up YDI as a key provider to a vertical industry that can't wait to get its arms around wireless.

— End