Back in 1977, Frank Peters was running a computer company when a Japanese firm approached him for advice about how to begin selling in this country an optical character reader, a device that reads printed information and turns it into data that can be stored electronically. "I said, 'Don't do it. It's a bad idea,' " Peters said.
The company ignored Peters' advice, and ultimately he started selling the device for them. In selling it to banks, Peters saw a need for a way to make it "talk" to the banks' computers. Peters' company found the answer with a device it developed called a message switch.
Twelve years later, Peters' present company, Franklin Telecommunications in Westlake Village, has designed a product that is a distant stepchild to that message switch, and Peters believes that it puts his company more than two years ahead of rivals in helping computers talk to each other via phone lines.
So confident is Peters about the computer product that he's effectively bet his company on it, selling two of Franklin's important divisions to concentrate on selling a device called a multi-protocol switching PAD, or MPP.
Computers built by different manufacturers generally 'speak' different languages. But most companies that use computers don't want to throw out all their old equipment each time they buy a new computer. Instead they want to find ways of making all their computers talk to each other over special telephone lines. The MPP takes messages from one computer, puts them in a different language and sends them via phone lines to other computers.
Since the early 1980s, other major data communications companies such as Hughes and Telenet have sold fancier MPP-like gadgets that can be used in extensive computer networks. But many of those devicescannot be reprogrammed easily and most are expensive. Larry Cynar, a data communications analyst with Dataquest, a San Jose market research firm, said that while a Telenet system can cost $100,000 or so, Franklin can offer a comparable but simpler system for as little as $20,000 to $30,000.
Franklin's MPPs also come with the feature Peters said sets them apart: software that allows a technician to reprogram the devices if old computers are replaced or new ones are added to a network.
"It is a good strategy," Cynar said. "Franklin's been doing it for several years now and has a good spot."
Already, Franklin's MPP sales have grown from zero 2 1/2 years ago to more than $5 million in the fiscal year that ended June 30, according to John Hochstein, Franklin vice president and secretary. And Hochstein predicts that sales will double or triple next year.
Franklin counts among its MPP customers Citicorp, which is using the device to help connect the bank's branch computers, automatic tellers and central main frame computers, a deal Franklin says will be worth more than $1 million in the first year. Franklin also announced a deal to provide MPPs for First Boston Corp.'s computerized securities trading system, as well as one with San Diego-based Price Co., a national wholesaler of appliances and office goods.
But as is the case with most new electronics products, Franklin has to keep an eye on a competitor. Amnet, a privately held Massachusetts firm, offers a similar MPP device, according to Robert Machlin, the company's vice president of marketing. Machlin declined to give a sales figure for Amnet's line of competing MPPs but said the company's total sales for all product lines were about $5 million last year.
Another worry for Franklin, according to Dataquest's Cynar, is that some major data communications companies want to try and introduce their own lower cost MPP versions. "Everybody wants to go that way," he said.
To try to keep its technological edge, Franklin may seek an extra infusion of cash to fund the expected growth in its sales of MPPs, Peters said. The money would go for research and development and sales and staff support, he said, since he expects his MPP division to double in size to 120 workers in 18 months.
Franklin has already raised $1.5 million as part of an agreement in November, 1988, with a Canadian data communications company, Gandalf Technologies. Gandalf purchased a 7% stake in Franklin and agreed to market its products in Canada. "We have faith in Franklin," said Gandalf's vice president of corporate marketing, Thomas Baumgartner. "We knew that to be fully successful that they needed some more money to put in some more engineering and some more support."
In the meantime, to narrow its focus on its MPP business, Franklin announced earlier this month a $550,000 deal to sell the assets of two of its divisions: Shamrock, a direct marketing operation, and PC Products, which makes and markets computer peripherals such as modems and data storage systems.
But Franklin's plans to shed the two divisions could be risky, since those parts of the company have proved key to its expansion. According to Franklin's annual report for the year that ended June 30, 1988, the PC Products division brought in the largest portion of Franklin's $26.1 million in sales. Since Peters started the company in 1983, Franklin has grown steadily, and in the nine months that ended March 31, Franklin's sales climbed to $23.2 million.
Despite the growth, Franklin has not always been profitable. In the 1987 fiscal year, Franklin lost $1.2 million on sales of $19.4 million, and in its latest fiscal year, Franklin earned only $339,000.
Peters, who owns 35% of Franklin's stock worth about $2.6 million at recent prices, has essentially opted for the Kentucky Fried Chicken school of management: Try and do just one thing right.
"By selling off those divisions I think I got rid of 95% of my risk," Franklin said. "I'll admit that I was stretched trying to manage all three kinds of business."