Cashing In by Keeping Mainframes in Sync : Computers: Company become year’s second-hottest IPO, beating success of Netscape.
Standing on the 25th floor of one of the tallest buildings in San Francisco last month, John Rademaker surveyed the rows of computer terminals in the stock trading room of Robertson, Stephens & Co.
On those glowing screens, he watched his life change.
Sync Research Inc., the company he founded 13 years ago, was selling stock to the public for the first time, and by the end of the day it would become the second-hottest offering of the year, beating even the ballyhooed success of Internet access provider Netscape Communications Inc.
The 3.9 million shares of Irvine-based Sync were initially priced at $20 apiece, but finished the day at $44. Rademaker’s already respectable wealth soared to more than $41 million, based on the value of the 971,000 shares he had kept.
“It was otherworldly,” said Rademaker, 48, in a rare moment of reflection from someone who often deflects questions with flip remarks. “It kind of made me scratch my head.”
Like many high-tech success stories, this one involves a team of engineers marching in one direction while much of the rest of the industry was running the other way. In the face of this stampede, Rademaker, a devoted triathlete who runs, bikes or swims daily, was a key source of energy and endurance.
Sync makes devices that help companies get more mileage out of their aging IBM mainframe computer networks, systems that have been around since the 1950s but still carry as much as 60% of the world’s data.
Mainframe users tend to be conservative companies that need secure and reliable networks. Banks, for example, connect their branch offices to mainframe machines that process automated teller machine withdrawals and most other transactions.
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Given the rise of newer, cheaper networks in recent years, some industry experts began predicting that the mainframe was headed for extinction. But Sync is betting that won’t happen soon, and its products give mainframes added life.
Sync’s devices enable old mainframe systems to transmit data the way new networks do. That means companies no longer have to spend thousands of dollars a month to lease special phone lines for their mainframes, and can take advantage of newer, cheaper ways phone companies have devised for shipping data.
“We’ve saved about 35% to 40% off our annual networking costs” largely because of Sync’s devices, said Matt Pelka, a network manager for Safety-Kleen Corp., an Illinois company that recycles oil and other toxic fluids and has 200 locations nationwide.
Blue-chip companies such as Rockwell International Corp. and Wells Fargo Bank are also Sync customers.
Investors are clearly confident in Sync, having pushed the stock price as high as $55 a share in recent weeks, though it has since retreated to $45.50. Analysts, however, are mixed on the company’s prospects.
Some say Sync is poised to control a booming market, but others say it could be squashed by other computer networking giants, such as Cisco Systems, that already make similar products and are likely to launch a larger invasion soon.
“If you asked me which one I would bet on, I would take Cisco,” said Todd Dagres, an analyst at Montgomery Securities in San Francisco.
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Sync’s history isn’t terribly reassuring. The company, which currently employs 80 people, has lost money for the last four years, accumulating a deficit of $8.2 million. Its $11.9 million in sales for 1994 fell far short of earlier projections of $21 million.
But Rademaker, true to form, is unshaken. He has helped the company sign crucial agreements under which International Business Machines Corp. and other networking giants will recommend that their customers use Sync’s products. He has also recruited five new executives in the last year, after being “disappointed with the way we were executing in 1994.”
The booming popularity of newer phone services had a lot to do with the success of Sync’s stock sale. But so did Wall Street’s huge appetite for high-tech stocks, especially those related to the Internet or computer networking.
Most stock offerings are priced so that each share will appreciate 15% by the end of the first day of trading, said Michael Murphy, editor of California Technology Stock Letter. “This year, there have been a whole lot of deals that have moved up 50% or more,” he said.
Arbor Software of Sunnyvale, Calif., topped them all, as its stock jumped 131% on its first day of trading, Murphy said. Sync was second at 120%, beating Netscape, which saw its stock price soar 108% on its first day.
Rademaker acknowledges the stock sale has made him a very wealthy man, but says it also led to a more sober realization. “All it means to me,” he said, “is there’s this huge expectation we need to fulfill.”
Colleagues say Rademaker is ambitious and dedicated, qualities that can sometimes be obscured by his penchant for wisecracks.
When Sync officials were having trouble describing their devices to a potential partner several years ago, Rademaker stood up to offer what the audience presumed would be a serious explanation. His explanation: “A miracle happens.”
In another company story, Rademaker once removed his office door and presented it to employees at a company meeting. The theatrical gesture was meant to calm employees who began fretting for their jobs after watching Rademaker hold a number of closed-door meetings with venture capitalists several years ago.
After the markets had closed on the day Sync went public last month, Rademaker, along with his wife and their two children, gathered with siblings and cousins at his parents’ house in the Russian Hill district of San Francisco.
When dinner was over, Rademaker stood up and capped the eventful day.
“Everybody in this room is going to college,” he said, smiling at the six children looking up at him. “That is, if we don’t tank.”
