While earnings warnings and revenue slowdowns from large companies such as Motorola (NYSE: MOT) and Cisco Systems (Nasdaq: CSCO) have dominated the business news headlines in recent days, small companies have been taking their fair share of lumps, too. It appears that as far as the current economic downturn is concerned, size doesn't matter. We examined one small company whose business rate has been hampered by the recent conditions, Remedy Corp. (Nasdaq: RMDY), in last week's column.

But despite such negative news, there are some small companies that are continuing to grow their businesses amid the current turbulence. One such firm is enterprise wireless data systems and services provider Aether Systems (Nasdaq: AETH). Aether is a young, unprofitable company with an unproven business model that depends heavily on the wireless data-enabled world of the future -- something that has generated more excitement to date than meaningful profits. Still, Aether's story is an interesting one, if only because the firm is growing during a period when so many other companies are not.

Yesterday, Aether maintained that its revenues in Q1 and Q2 will be in line with previous guidance, with sequential growth of 16% in Q1 and 23% in Q2. Beyond that, the company projected sequential top-line growth in Q3 and Q4 between 15% and 20%, down a bit from an earlier growth range but favorable growth nonetheless. According to these updated growth rates, Aether's fiscal 2001 total revenue is poised to roll in between $158 million and $165 million, up sharply from the $58 million in revenue realized last year.

Of course, a company can't be properly valued based on its revenues and growth rates alone, despite many questionable attempts to the contrary by investors and sell-side analysts over the past few years. In the end, cash flows are what an investor needs to focus on, even for a company like Aether that has yet to generate net positive cash flow from its business. To modify a well-known saying from PC executive Michael Dell, "You don't bank top-line growth rates. You bank cash."

Judging Aether from a cash perspective is a helpful way for an investor to go, since cash is one thing the company has in abundance right now. At the end of last year, the company's balance sheet sported $856 million in cash and equivalents, which works out to $21.80 per share. So, cash is one of the firm's main assets by far, trailing only the $1.5 billion of intangible assets built up through an acquisition run in 2000.

Aether was smart to build a cash hoard last year when times were good. A pair of secondary stock offerings done when the company' share price was in the triple-digits look like brilliant moves in hindsight, given that the stock currently trades around $15 per share. But the real challenge in analyzing a company like Aether lies not in valuing its past cash-raising abilities. What matters most is how the cash will be put to work in the future.

Just because Aether's share price in the market is less than the per share value of the cash on its balance sheet, the company isn't automatically a bargain. Aether will be deploying that cash as it continues to expand its business, and the returns that are subsequently generated will greatly impact the company's future business and stock market returns.

In fact, Aether estimated yesterday that $500 million in cash will remain on its balance sheet when it hits breakeven on an EBITDA (earnings before interest, taxes, depreciation, and amortization) basis, which is seen happening in Q3 of next year. That works out to $12.73 in cash per share at that point (assuming a steady sharecount) and closer to $12 per share when discounted back to a present value at the current long-term Treasury rate. And even then, investors shouldn't expect Aether's remaining $500 million to sit in a money-market account forever. If it does, then the company would better serve its shareholders by distributing the money to them and allowing shareholders to seek out a higher return on their own.

Still, Aether's impressive cash balance does provide a certain competitive advantage, especially during periods like the current one when economic conditions are shaky. The company has a degree of financial security that it can use to make inroads against weaker capitalized rivals, increasing the prospect of positive cash flows from its core business down the road. With some of its competitors now focused on basic business survival instead of future growth, a firm like Aether has a chance to widen the gap. One way to do this is through continued marketing spending, which is important to a firm like Aether in the sense of increasing awareness of its systems in the broader development community and in driving adoption rates for its services among a larger client base.

Here's how Aether stacks up against the independent, publicly-traded competitors listed in its most recent 10-K financial report in terms of current cash per share and selling and marketing spending over the trailing twelve-month period. These will be important areas for investors in the emerging area of wireless data services to keep tabs on over the coming quarters:

                                        Selling &

Name and Share Cash/ Marketing Ticker price share Spending
Aether(AETH) $15.35 $21.80 $54.1 Openwave(OPWV) $29.40 $2.64 $80.4 724 Solutions(SVNX) $10.92 $4.51 $13.0 GoAmerica(GOAM) $2.19 $2.62 $35.8 AvantGo(AVGO) $2.01 $6.08 $29.4
Extended Systems(XTND) $8.38 $0.46 $20.2
Pumatech(PUMA) $2.54 $1.34 $20.2 (numbers in millions, except per share)

At the time of publishing, Brian Graney did not own shares of any of the companies mentioned above. The Motley Fool is investors writing for investors.