Timing Is Money : When Telecom Took Off, Datum Was Right There

By PATRICE APODACA

July 19, 1997 12 AM PT

TIMES STAFF WRITER

In the time it takes to read this sentence, zillions of electrical impulses will have zipped through the nation’s phone wires, like so many cars speeding along the San Diego Freeway.

But freeway drivers know all about bottlenecks. What keeps the information from slamming on the brakes as it winds its way through the telecommunications maze?

Highly accurate timing devices--clocks, if you will--are deployed throughout the system. These electronic traffic cops wave the bits of data through in orderly fashion, preventing them from crashing, piling up or taking the wrong offramp.

As Datum Inc. can attest, it’s a good business to be in these days. With the global boom in telecommunications spawned by the explosive growth of cellular phones, fax machines, computers and old-fashioned wire line phones, demand for the Irvine company’s timing equipment is soaring.

Talk about being in the right place at the right time. A decade ago, Datum’s biggest customer by far was the U.S. government, which uses atomic clocks in missiles, satellites and observatories. It was a decent, if unexceptional, little business.

Then the telecommunications market took off, and “man-oh-man, they needed us,” said Datum’s longtime chairman, Louis B. Horwitz.

In 1996, Datum’s profit leaped to $1.97 million, from $60,000 the year before, while its sales jumped 37%, to $91.9 million, from $67.3 million.

DATUM: Its Timing Was Right

Investors have taken notice. Datum’s stock has surged nearly five-fold in the last year. An analyst’s bullish report, which predicted that the company’s profit would more than double this year on a 33% gain in sales, caused the stock to spurt again last month on the Nasdaq market. After reaching a new high on Thursday, the stock was down $1.75 on Friday, to close at $38. Telecommunications now accounts for about two-thirds of Datum’s business. Its biggest customers are a “Who’s Who” of the industry: Lucent Technologies, AT&T;, Motorola, MCI Communications and Pacific Telesis.

It has taken more than luck and good timing, though. Horwitz, an engineer himself, was perceptive enough to see the surge coming in telecommunications markets. In the mid-1980s, Datum made some key acquisitions, picking up some leading-edge technologies along with many of the engineers who developed them.

The investments paid off, and Datum now dominates a tiny but critical link in the telecommunications system. In the traditional wire-line phone business, Datum competes with San Jose-based Symmetricom Inc., which also buys products from Datum. But the wireless market is where the big growth is, and Datum is pretty much alone in supplying superior-quality atomic clocks to that industry, said analyst Ian Gilson at Van Kasper & Co. in Los Angeles.

Electronics giant Hewlett-Packard Co. in Palo Alto makes a so-called “smart clock,” which is used by some wireless telecommunications concerns, but Datum’s devices are far more prevalent because of their extreme precision, Gilson said.

Analyst Joe Noel at Hambrecht & Quist in San Francisco said he believes any threat to Datum’s position in the wireless market is at least two years away because of the time it would take to develop new technology and receive a government stamp of approval.

That’s no small advantage. The Yankee Group, a Boston-based research and consulting firm, projects that by the end of the decade, wireless communications revenues in the United States will nearly triple from 1995 levels, to $65.4 billion.

And as telecommunications networks throughout the world are upgraded and expanded to accommodate more traffic, total industry revenues will hit $950 billion by 2000, a 58% gain over a five-year period, the Yankee Group predicts. Although analysts see more competition in the international arena, they say it’s a safe bet that Datum’s clocks will find their way into many of the new systems being installed around the globe.

Datum’s timing devices range from the size of a small alarm clock to breadbox-sized units crammed with electronics. The guts of the packages are sophisticated oscillators many thousands--in some cases millions--of times more precise than a standard quartz watch.

Instead of quartz, most of the Datum devices use rubidium and cesium gases, which have peculiar qualities that help establish very precise vibrations. The more precise, the more expensive. Datum clocks sell for anywhere from $2,000 to $200,000.

Here’s how the clocks work: Say you’re in your car and make a call to an office in New York on your cellular phone. An antenna nearby picks up the signal and relays it to the closest base station--a big box filled with receiving and transmitting equipment linked to a satellite.

An atomic clocking device is also there to help combine the call with others going in the same direction, and to dispatch them onward. This bundle of calls then goes through a series of wire-line switches--rooms full of electronics that are the heart of the phone network.

In its trip across the country, the call that started in your car might go through several switches. Each time, a clocking system makes sure the switch is ready to take the call and send it on its way.

Without the clocks, “it’s fair to say it would be impossible” to synchronize the information flowing through the switches, said Doug Botkin, a technical specialist at Lucent.

Datum’s other markets are promising as well. Its units figure into the global positioning satellites used to link communications networks worldwide. The clocks are used to test and measure new aircraft. They help organize the flow of data in computer networks. Stock brokerages use them to time transactions.

At Datum’s Irvine plant--and at its factories in San Jose; Austin, Texas; Boston; and Germany--the company’s 620 workers piece together the tiny inner workings of the intricate devices. After they’re assembled, the units must sit on racks to be “aged,” like wine, so the gases inside can settle.

The company’s challenge now, Horwitz said, is “staying up with and ahead of this rapidly moving technology. It takes a lot of capital investment to be in this business.”

Datum got a little help with that last year, when it restructured its debt. Earlier this year, it netted $12.4 million in a stock offering.

The cash is coming in handy. Datum’s clocks can’t be produced overnight, so it has to stay ahead of expected demand. The risk is that the company could get stuck with excess inventory if orders are cut.

But analysts say just the opposite is the case right now. To meet the big production objectives of its customers, Datum must operate in overdrive. It has added 30 new employees so far this year and plans to keep hiring.

As Hambrecht & Quist’s Noel said, “It’s a good problem to have.”

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Datum’s Role in Telecommunicating

A typical scenario in which Datum Inc.’s precise timing devices are used to transmit a cellular phone call across the country.

1. Caller: Person in Orange County places a cellular phone call to New York.

2. Base station: Antenna in caller’s area receives call and sends to base station (receivers, filters, computer and connections to wireless system). Datun timing system helps organize signals and bundle calls going in same direction.

3. Satellite help: Receivers accept signals from global-positioning system satellites, which contain Datun cesium clocks.

4. Wireline trek: Upon reaching first switch, call enters wireline network and joins with many additional calls. Datum devices help determine if switch is ready for a group of calls. Calls may go through several switches in various cities along cross-country route.

5. Destination: Final switch directs call to home or office.

Booming Net Income (In thousands, by quarter)

1996:

1st: $182

2nd: $151

3rd: $649

4th: $992

1997:

1st: $1,194

Increase Sales (In millions, by quarter)

1996:

1st: $19.6