Where Are They Now? Market, Strategy Determined Fate By CARLOS MARTINEZ Staff Reporter When the Internet and telecommunications boom began in the early 1990s, a wide collection of the Valley’s technology companies was poised to take advantage of a big demand for their products. Circuit boards, computer chips and nearly anything that could be hooked up to a computer seemed to be selling as fast as these companies could make them. But when the tech market started sliding in 2000, some companies declined quickly and then either closed, sold out or moved into another market. What happened to some of the highest-flying firms of the 1990s? These are some of their stories. Xircom Thousand Oaks When Dirk Gates and Kirk Mathews founded Xircom Inc. in 1988, the two hoped their product, a pocket-size network card would catch on. It was a simple premise. Install the card and an everyday laptop computer could access a company’s computer network and, depending on the program, do far more than it could otherwise. By 1998, Xircom was a high flier, with nearly 1,000 employees and revenue of $276.1 million. As the company’s products grew more sophisticated and pushed its revenues to $496.2 million in 2000, it caught the attention of chip-making giant Intel Corp. By summer 2001, Intel acquired Xircom in a deal worth $748 million. But a year later, hopes for the company were dashed when a federal judge prohibited Xircom from manufacturing, distributing or selling any of 26 products related to its high-end Real Port and Real Port2 modems and networking cards. The company was sued by Santa Clara-based 3Com Corp. for allegedly copying its technology in order to develop its own networking cards as part of its Real Port line. The companies settled the case last November with Xircom paying $15 million to 3Com, but Xircom’s fate was sealed as it could no longer make its networking cards which made up two-thirds of its revenue. By February, Intel quietly discontinued sales of its remaining Xircom branded products. By then, Xircom’s Thousand Oaks headquarters and outside offices employing 1,900 people just 18 months earlier were closed, with some of its staff moving into Intel’s Santa Clara headquarters where they’ve been dispersed into the company’s other units. Franklin Telecommunications Inc. Frank W. Peters, president and CEO Westlake Village “We had this great Voice over Internet Protocol technology, or VoIP that got people really talking and everyone wanted,” said Peters. “People were amazed you could send data and voice over the same Internet connection.” So the tiny Franklin grew from a $1.4 million a year business in 1998 to a $10.6 million a year business a year later. Even the government and the military had to have Franklin’s technology. But when its competitors caught up to it in 2001, the company’s fortunes waned. The technology downturn also caught up with some of its major customers who simply stopped buying. By the end of 2001, the company’s revenues dropped to $1.2 million while losing $11.2 million as its market continued to shrink. “We started looking for a partner so we were fortunate when we found Accetio,” said Peters, whose company acquired San Diego-based Accetio Inc., a cell phone designer and manufacturer. Under the Aug. 14, 2003 deal, Franklin will become Franklin Wireless Corp. once the deal is approved by state and federal regulators. “We plan to get heavily into wireless technologies with our combined companies,” he said. United Online Mark Goldston, president, chairman and CEO Westlake Village Amid lots of hype and industry buzz, NetZero made its entry into the Internet service provider business in 1997. With its slogan “Defenders of the free world,” the company sought to push its business of offering free Internet browsing to subscribers through a purely ad-supported service. The company’s successful television spots led to a storm of new subscribers over the next three years, but as the dot-com boom turned into a bust, online advertising all but dried up as advertisers cut back on spending while focusing their fewer dollars on traditional print and television advertising amid the economic slump. CEO and company founder Mark Goldston, a turnaround artist in his own right, sought to reinvent the company into a subscriber-supported service. “The company was a phenomenon, then the Internet advertising market cratered and the Nasdaq cratered, so it was like the perfect storm for us,” Goldston said. “We weren’t going to wait for the market to recover, so we looked at the Dell computer model and the Northwest Airlines model (of no-frills service) and we launched our pay service in March 2001.” With $140 million in cash still in its coffers, the company acquired its archrival Juno Online Services which also offered a paid and free service as a way to gain a greater foothold in the paid subscriber market. “We were seen like two skunks,” Goldston said. “We were criticized by everybody, but we knew we would be successful,” said Goldston who headed the then newly renamed United Online Inc. By offering a $9.95 per month service, which was less than half the price charged by America Online and EarthLink, the company began the process of “migrating” its free subscribers to its paid service while adding altogether new ones for the service. The pay service offers a no-frills home page for users with no pop-up ads, with live technical support provided for $1.95 per minute. The free service was by then restricted to users for a maximum of 10 hours a month. The company managed to go from losing $205.8 million on $57 million in revenue in 2001 to a $27.8 million profit on $277 million in revenue last year. While many analysts were turned off by the company’s free Internet model, its new pay model is getting high marks from some of those same analysts. “They’re offering people a bargain and that makes them attractive,” said Linda Leong, an analyst with Gartner Inc. Power-One Inc. Ed Schnopp, chief financial officer Camarillo With the advent of the Internet, cell telephones and subsequent growth of computer networks and electronics for seemingly all phases of business, Power-One Inc. was in the right place at the right time with its power supply and power conversion products. In the 1990s, the company’s revenues grew steadily, going from $56.2 million in 1994 to $510.9 million in 2000. It was a case of supply meeting demand in a big way. But as the tech market began to unwind in 2000 and 2001, its major customers, Alcatel, Motorola, Lucent and others, cut back on their orders amid an oversupply of products and a declining economy. Power-One, like so many others, saw its business drop by about a third in 2001, from $510.9 million to $363.7 million and down to $230.7 million in 2002 the same year it lost $211 million. The company, however, was able to respond to the challenge by cutting 24 percent of its 2,600-member workforce and by closing facilities in the U.S., Mexico and Puerto Rico. The company has been fortunate since it has outsourced much of its manufacturing as part of its cutbacks, giving it a chance to ramp up production quickly when it is needed. Power-One CFO Ed Schnopp said the company’s efforts at cost cutting and in developing new products are paying off. With its new silicon-based power converters selling better than expected last quarter, the company is hopeful the trend will continue.
