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Profile/33″ with box/mike1st By CHRISTOPHER WOODARD Staff Reporter Dirk Gates, a self-proclaimed “tech geek” who was writing his own computer programs by age 11, was standing in a computer store in the mid-1980s, preparing to buy a laptop PC, when he was struck by a multimillion-dollar idea. Gates happened upon software that would allow computer users to transfer data between PCs at high rates of speed. The only problem was the software required an expensive, toaster-sized gadget to make it work. Gates, an electrical engineering grad working on his MBA at the time, knew if he could develop a pocket-sized card that allowed notebook computer users to link up to their company’s computer network, it would be a hit. When he and co-founder Kirk Mathews started Xircom Inc. in 1988, neither of them had any idea how big the product would become, or how it would change the business world. “Pre-Xircom, notebook PCs were much like hand-helds today. They were power toys, essentially,” recalls Gates. “But once we put them on the network, they became full corporate citizens.” Today, Xircom is the market leader in the mobile computing industry, generating net sales of $276.1 million in the fiscal year ended Sept. 30 from a whole range of PC cards that allow notebook computer users to link up to their networks at work, or to the Internet. The cards can even be used on cell phones, enabling executives on the road to connect their notebooks to the Internet or to their company’s network. What seemed like a simple idea turned out to be a bonanza for Gates. The 37-year-old, who lived most of his life in the San Fernando Valley, owns 1 million shares of the company’s stock, valued at a cool $33 million. Question: When you came up with the idea for this product, did you have any idea it would be this big? Answer: No. It just seemed like a relatively straightforward product to go engineer and get to market quickly to start a cash flow. It wasn’t until after that that we realized we had tapped into a huge trend. It has had a tremendous impact on the way we all live and work, carrying our notebooks with us at home and work, wherever we go. Q: You’ve been referred to in news articles as “the other “Gates.” Any relation to Bill? A: I frequently get asked that. There’s no family relationship that I’m aware of. The only relationship is the simplicity of our founding vision. Bill’s founding vision 20, 30 years ago was a PC on every desk, and his software in each. And he’s done very well some people would argue, too well. The founding vision for Xircom was that someday every PC would be mobile, and we wanted Xircom to be connected with each and every one. Q: What has this idea meant to you in terms of your own personal wealth? A: Currently my ownership is running right around 1 million shares. So I have quite a bit at stake, but that’s all on paper. The real fun, the real joy and the real challenge comes from growing the business. Seeing the impact on the world around me. Q: How has your lifestyle changed compared to when you were a struggling student at CSUN? A: Let’s see. I work a lot more hours and I travel a lot more. Basically it’s been all on paper. I haven’t gone out and done anything wild with my supposed money. I just focus on the business. When you include laptop time at home in the evening, I guess I’m working, on average, 60 or so hours a week. Half my time is spent traveling. You never stop working when you’re on the road. Q: Is it worth such long hours? A: Sure. It’s hugely rewarding. It’s great to see the company grow. It’s fantastic to have this great set of people around me who work at Xircom. It’s fun, that’s why I keep doing it. As long as it stays fun I’ll continue to do it. I think it’s true of a lot of entrepreneurs. Once they start seeing the success and what they can accomplish, it’s exciting. You want to do more. Q: So what’s driving the market for your mobile computing products? A: The No. 1 driver in our business is the growth of notebook PCs, which are becoming the business PC of choice. Increasingly, businesses are equipping their employees with notebook PCs because they get better productivity. You can take your notebook computer home every night, catch up on some e-mail, work on some of your spreadsheets or your presentation. The net result is that today, probably a third of all business PCs are notebooks. That number is expected to become more than half by the year 2000. Q: Your latest product, the RealPort Integrated PC Card, has created quite a buzz. How does it differ from the older technology? A: With (Xircom’s older cards, and the current offerings of its competitors) you would have a cable that would come out of the card and go out to a connector that would allow a phone cable or network cable to plug into it. These little pig tails have been the No. 1 problem for notebook users with PC card communications. They would either frequently lose or break these cables. Our next generation product (RealPort) is a breakthrough, in that it eliminates these pig-tail cables by integrating the real world, phone and network connections, right onto the back of the card. When we started, our cards provided an Ethernet LAN connection for in the office. And our latest generation products now have the Ethernet connection, the V.90 modem and cellular capability all in one product. Q: Are you worried about competitors knocking off your latest offering? A: The nice thing about our latest innovation product, and one of the things that has us most excited, is that it’s patented. The rest of the industry will continue to have to supply pig tails or some alternate, non-standard connection interface. Q: How well has this product been selling? A: In our September quarter, the just-completed quarter, it was 30 percent of our revenue. When (the card) was introduced in the quarter that ended in June, it was only 5 percent of revenues. Since introduction, we have expanded the line and there are now nine different types of these cards. They cost anywhere from $130 for an Ethernet-only, LAN interface for the office, up to probably $330 if you want everything with the highest speeds. Q: Xircom’s stock was beaten down to about $15 a share during the market sell-off in August, but it has since more than doubled. Why the volatility and what’s fueled the resurgence? A: We had just launched the new product in the June quarter, and the folks on Wall Street who follow us were just beginning to understand what that product’s impact was going to be. And how much of that information was fully understood and fully digested is a little bit questionable at the time we had the tremor in the financial community in August. What it meant for us, we ended up being much more volatile. The good news is, we recovered right after it. I think a lot of that is really taking a look at what the current forward-looking estimates are for the company. Q: You recently announced you’re opening a regional headquarters in Tokyo, just as many other companies are looking to reduce their exposure to Asian markets. Why? A: Japan is a huge market for notebook PCs. Probably about 25 percent of all the notebook PCs in the world are shipped there. For us, it represents a huge opportunity. With this (latest) product, we’ve made the decision to go into the Japanese market. The good news is, we’re starting from zero. The bad news is, we’re starting from zero. But even in these tough economic times, we have nowhere to go but up.