Acquisition Reflects Franklin Telecom’s Risky New Tack
Franklin Telecommunications was named after founding father Ben Franklin, a man who espoused the idea of being healthy, wealthy and wise.
Two months ago, executives with the Westlake Village firm made a risky gambit that they hope will produce a healthy, wealthy company--they introduced a personal computer compatible with IBM’s powerful PC AT. Whether it was a wise move, given the hazards of the highly competitive personal computer business, is open to question.
Company officials, however, are charging ahead with their strategy for entering the computer manufacturing business, concentrating on moves that will enable it to make more of its own components.
Buys ABM Systems
A case in point came last week when Franklin Telecom, the name by which the company is best known, agreed to buy ABM Computer Systems of Irvine, a $1.5-million-a-year manufacturer of circuit boards. The proposed deal, a complicated stock transaction, the value of which wasn’t disclosed, would turn Franklin Telecom into a public company because ABM already is publicly held.
The merger would also broaden the product line of a company that for the last two years has specialized in assembling advanced data storage and retrieval equipment for personal computers. Franklin Telecom’s plan is to gain greater control over production of its own computer.
Frank W. Peters, the chairman, chief executive and majority stockholder of Franklin Telecom, acknowledges that it may be tough entering the personal computer business at a time when so many manufacturers are struggling because of the industry’s prolonged slump.
Low Overhead
But, he argues, his company can succeed because of its low overhead and software it has developed over the past year making Franklin’s computer significantly faster than similar ones.
“It looks wide open to us. We feel nobody is really doing a good job,” Peters said.
Phil Devin, senior industry analyst with Dataquest, a San Jose market research firm, said it isn’t as difficult as it might seem for a company like Franklin Telecom to produce a computer similar to IBM’s PC AT.
“It is highly competitive, but it doesn’t cost much to build them,” Devin said. “There are margins in these things.”
Devin added that Franklin Telecom could exploit the poor image of the IBM model stemming from the problems some users previously had with its disk drives.
Although Franklin Telecom has made computer products for more than two years, the firm still looks like a fledgling business.
The headquarters, where about 50 people work, is cramped. Marketing and financial personnel work side by side out of cubicles next to a small room where workers assemble equipment. Peters said he refuses to hire anyone who smokes.
Peters said the tight space reflects the company’s tight budget. Franklin Telecom’s engineering department is only two people, and its nationwide sales force numbers about 30 representatives who generally work out of their homes and usually are paid on commission.
Peters claims Franklin ships nearly all of its products the same day they are ordered by computer retailers. About 95% are sent cash on delivery, saving the company from being strapped for funds, he said.
Exxon Deal Fell Through
Peters, a former IBM executive, started his company in 1981. The “Telecom” in the company’s name stems from its early days when it manufactured digital switching devices used in computer communications for Exxon. Peters later agreed to sell the company to Exxon, but in 1984 the oil giant scrapped its ambitious plans for making office equipment, and the deal was off.
Peters then transformed Franklin Telecom into a maker of data storage and retrieval equipment known as mass-storage subsystems, which are hard disk drives and tape drives operating with the company’s software. Franklin Telecom recently added a laser-disk drive to its product line and now also sells a laser printer.
In acquiring ABM, Peters said, the Franklin is getting a company that makes circuit boards that computer owners use when adding features such as printers, additional memory and modems that enable communication between computers.
Will Own 75%
Once the acquisition of ABM is complete, Franklin Telecom’s current owners will own 75% of the merged concern. ABM’s former shareholders will own the remaining 25%, and ABM will operate as a division of the new company.
Getting Franklin Telecom into the personal computer business has been the job of Executive Vice President Michael Sutherland, who left Vector Graphic after only three months as president and chief executive when the long-suffering company filed in December for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.
Peters predicted the company’s revenue will be from $16 million to $18 million in the fiscal year ending July 1. With sales of its personal computers and the ABM products, he said, the company’s revenue could surge to as high as $40 million to $60 million in its next fiscal year.
Franklin Telecom officials don’t feel such goals are overly ambitious, given what they believe to be a vast market for personal computers. “The market is huge, and 1% of it would be nice to get,” Sutherland said.
