Xircom Returns to Notebook Networks : Computers: The Calabasas maker of electronic adapters gets back on track after its stock price dropped.
A year ago, Xircom Inc. looked like a good example of why initial public stock offerings are risky investments.
Xircom is a five-year-old Calabasas maker of electronic adapters used to link popular “notebook” or other small personal computers with other computers, printers and databases that make up corporate “local area networks.” Many offices and factories use such networks enabling many employees to share computer equipment and information.
Within weeks of its initial stock offering in March, 1992, Xircom’s over-the-counter stock zoomed from $14 a share to $22, getting a boost from several analysts’ recommendations. But two months later, Xircom stumbled when it tried to expand into components enabling desktop PC users to create their own LANs, not just connect to established LANs. Xircom’s stock plunged to $7 a share. And even though the stock later rebounded somewhat, it continued to languish below the $14 offering price until this spring.
But now Xircom appears to have gotten itself back on track. The company is once again concentrating on its original market: people who increasingly rely on notebooks and other portable computers, but who also need to tap into corporate LANs.
Xircom’s co-founders--31-year-old Dirk Gates, who is chief executive, and Kirk Matthews, 52, who is chairman--call these growing ranks “nomadic” computer users.
Despite the recent turmoil in the computer industry, Xircom has grown steadily.
Sales of its core products--plug-in adapters for several types of networks--boosted Xircom’s fiscal third-quarter net income 59% from a year earlier, to $2.6 million on a 49% gain in revenue to $21.6 million.
For the nine months that ended June 30, the company earned about $7 million, up 51% from a year before, on sales of $58 million. Xircom’s stock closed Monday at $15.50 a share.
The company’s foray into desktop PC networks was “unfortunate because it detracted from our real underlying vision,” Gates said. “We’re back now where we can focus on providing connectivity for mobile users and expanding on that with cordless products.”
Cordless, or wireless, local area networks are in their infancy. Instead of connecting computers with other computers, printers and databases with wires, wireless networks link the equipment with radio or infrared waves.
The wireless network market is still tiny--possibly $10 million in sales a year--and some analysts warn that growth could be slow. But Xircom, which already has as much as 70% of the market for wired-network adapters, according to analysts, figures that wireless networks are the future. Eventually, all offices will have them, Gates predicted. In the meantime, many companies will add at least some wireless networks to give certain employees more mobility for some tasks, such as taking inventory.
“Our job is to make all of this very simple,” Gates said. “The trends in this industry are the increasing mobility of computer users, the shrinking size of machines and the increasing distance people want to be able to go--to home, on the road, in hotels--and still be able to access corporate information.”
The company has also benefited from increasing sales of notebook and even smaller sub-notebook computers featuring a slot that accepts credit-card-sized network adapters.
Xircom’s improved prospects have prompted several analysts to raise their estimates for the company’s profit for its fiscal year ending Sept. 30. They now expect Xircom’s full-year earnings to climb 57%, to $9.6 million, as sales rise 38%, to $81.6 million.
How has Xircom managed to recover despite the fierce price war that has wracked personal-computer manufacturers for more than a year?
“Most of the problems you’re hearing about, such as layoffs, reflect problems with revenues or earnings, not sales of units,” said Steve Levy, a senior technology analyst in the New York office of investment firm Hambrecht & Quist Inc. “Unit sales are growing very nicely. Computers are selling for a lot less, but they’re still selling--especially high-end portable computers.”
Added Stan Schatt, director of LANs services at InfoCorp, a Santa Clara market-research firm, “Xircom has moved very, very fast and done very well with network interfaces. Now they’re moving into the wireless arena, where we think the action is going to be the next few years for portables.”
Last month, Xircom introduced a wireless intra-office adapter for linking portable computers to LANs that will hit the market this fall. Called “NetWave,” the radio-based technology works something like a cellular telephone. The system uses Xircom “access point” adapters, placed every 150 feet or so throughout an office or factory, to link a portable computer with the corporate network.
Users can then roam freely--for example, from office to conference room--within range of any access point adapter. The wireless adapters will also let portable computer users create their own LANs.
At least two of Xircom’s rivals, Proxim Inc. of Mountain View and Dayton, Ohio-based NCR Corp., already have such products for sale.
A similar cordless adapter that works outside the office, but connects a portable computer to a LANs via telephone lines, is coming from Xircom by the end of the year.
“I think the wireless office will eventually develop into a market, but right now it’s hardly on the radar map,” said Eric Zimits, an analyst with the San Francisco investment firm of Volte, Welty & Co.
“The cost of wireless LANs is still considerably more than wired LANs,” he added. “That’s made it difficult for these wireless companies to compete.”
But as the wireless office market develops, the challenge for Xircom will be to “stay at the top of the technology curve, the very beginning of the wave,” said InfoCorp’s Schatt. “That’s where the real money is, before these kinds of products become commodities.”
Xircom Inc. at a Glance
Founded in 1988, Xircom Inc. makes components to link personal computers--particularlyportable notebook or laptop computers--with other computers, printers and databases creating so--called local area networks. The Calabasas-based company stumbled shortly after going public in 1992 when it had trouble launching its second product. But now, it seems to be back on track.
