Client-side economics

Don't think typewriters — wrong Smith. And don't think fax machines. Right Smith, but that was just a start. If high-speed wireless data ever meets expectations, you may not know the name Smith Micro any better than you do today, but you'll likely be familiar with one of their products: a client side software solution that makes connecting wirelessly to the Internet seem as easy as spelling a name like Smith.

Smith Micro just might have the market for the client side of wireless data all sewn up after its recent contract extension with Verizon Wireless, which finds the 22-year-old communications software company from Alisto Viejo, Calif., supplying client-side setup and configuration software for new wireless data customers of not only Verizon Wireless but Cingular Wireless, Telus of Canada and a group from the United Arab Emirates.

The software is QuickLink.Mobile. It was first introduced in 1998, a rejuvenation of the FAX modem software that put them on the map. Now that wireless networks are finally catching up to their promises of high-speed wireless data, Smith Micro may find itself all over that map.

“When the modem business started to decline, we knew we had to find other areas we could use our core software in,” said Bruce Quigley, vice president of business development and investor relations at Smith Micro. “And wireless data stood out.”

The QuickLink brand might not stand out, depending on how carriers brand their services. Verizon Wireless is calling its brand VZ Access Manager. The software allows users of Verizon's EV-DO or 1xRTT data services, as well as Wi-Fi and dial-up across IS95A networks, to manage their own remote access across the country.

Originally, Verizon was to ship the software with their handsets. Last month Verizon announced it would ship QuickLink Mobile software with select PC Cards.

The software resides on a user's PC as opposed to being included in the device — and with good reason. “Handsets today have very short lifecycles,” Quigley said. “And if card manufacturers were to bury our software onto their device, it would automatically be obsolete because of the time it takes to get those to market.”

Once loaded, the software will detect the mobile device and configure it accordingly. It also provides a Wizard that helps users customize their connectivity or manage their virtual private network connections.

Keeping the software on the PC or laptop makes updates easier, which keep users using the latest release. But mostly it's good for Smith Micro. That short device lifecycle means the company has to be ready to support the whims of the mobile operators, who, when it comes to their product offerings can be quite whimsical.

“The [operator] is king,” Quigley said. “But we still need good relationships with the handset manufacturers because when these operators decide to use another manufacturer's set, we have to be compatible.”

Plus, it's much easier to write software for operating systems that have been around a while instead of writing software for handsets that have their own proprietary cables and interface ports.

“There are no standards in the device world,” Quigley said.

The company's stock (it went public in 1995) got a decent bounce from the Verizon announcement — which is more than Verizon got.

The company saw a 36% increase in net revenues this quarter over last and a 411% increase over the same quarter last year. What happens when AT&T Wireless, which uses a product from PCTel among others, merges with Smith Micro's other large U.S. customer, Cingular Wireless, remains to be seen.

Both Verizon Wireless and Smith Micro should get a bounce as the nation's largest wireless operator begins to extend the rollout of its EV-DO service and its 1xRTT users become real data users.

In its second-quarter results last month, Verizon Wireless set record numbers for average revenue per user (ARPU) due in large part to the growth of wireless data.

“Data now contributes $1 more in ARPU than last year and represents $1 billion in revenue,” said Doreen Toben, executive vice president and chief financial officer for Verizon.

Toben said 70% of customers now have a 1xRTT handset, which is a 28% increase from last year. She said that VZ Access provides a seamless data access experience for wireless data customers and that the growth of data helped the wireless division achieve its most profitable quarter ever.

Smith Micro ought to be able to bite into that nugget and see it's no longer fool's gold.