Telematics International Inc, based in Fort Lauderdale, Florida describes itself as a data communications specialist and, having trundled along for eight years, is now looking for strong commercial leadership to take it back into profitability. First quarter 1990 saw it heading in the right direction with a net loss of $1.2m down from a loss last time of $4.5m on turnover up 35% to $15m (CI No 1,428). This gradual turnround has much to do with the entrepreneurial skill of the company’s new president and chief operating officer Bill Hightower, who joined the company in August last year.
Blunt Texan
He came to Telematics from his position as chief executive of the AT&T subsidiary American Transtech. A Texan, Hightower is blunt about his new company’s past: in 1983 Telematics produced a programmable communications product to a great deal of fanfare and zero sales. The problem, he says, is that the product had no application software. Consequently, the company selected X25 packet switching as the key application. By 1986 Telematics had grown to a turnover of $24m and decided to acquire Calabasas, California-based Protocol Computers Inc to take the company into low end products. Protocol Computers was a leading supplier of protocol converters, a market that shrank at an incredible pace. In 1985, the company had a turnover of $17m from protocol sales which now contribute only half that figure in sales. However, during that time, growth from other products has gone up. Most significantly, growth has been fuelled by revenues from the Smartnet access communications processors. Protocol got into X25 networking after several other companies, only coming up with a product in 1986. However it had researched the market carefully and although not first it had the added benefits of knowing the pitfalls. First and foremost it knew that all vendors of X25 products had liabilities stemming from the marketing of a cheap EPROM-based unit. This had led to some customer resistance, since companies were just deploying software and leaving customers to manage compatibility issues. This kind of treatment led to the development of an assertive user-base which wanted reliable products with a low cost of ownership, products with high throughput and low transit delay. In short a single product function would no longer do, a communications infrastructure had to be implemented. Protocol Computers came through with a $3,000 product that offered non-disruptive code management, 200 simultaneous sessions, user-tailored alarms and so on. –
By Katy Ring
It was to get hold of this product that Telematics acquired the company. Furthermore, SmartNet has an access layer to T1 networks such as Tellabs which Telematics could use as a selling point to a non-Telematics user-base. Basically, the product means that small companies can set up a network, plug in and play, claims Telematics, without recruitng hundreds of information systems staff. At present SmartNet accounts for 35% of the company’s total revenues and Hightower reckons this will grow. On the research and developmenmt side, the company is working on a SmartNet product which will be capable of sending 500 packets per second by year end. One problem facing the company when it comes to low end products, however, is that the X25 market in Europe and the US is near saturation point, which means it must look to other markets. The Middle East is one such area, until recently, ripe for commercial exploitation, another possibility is Eastern Europe. Hightower is currently negotiating a big deal in the Soviet Union to network oilwell stations for transmitting and receiving seismographic data. Telematics has recently launched a new suite of network management packages running under Unix: SmartView/UA to manage asynchronous connections, SmartView/UX for X25 support and SmartView/UXG which also has X25 support but adds a graphical user interface. The company’s high end products account for 55% of turnover, while the Spectrum Digital products contribute 15% of revenues. The company intends to have pulled out o
f protocol conversion by year end. At the high end Telematics has launched two Programmable Communications Processors the PCP 4500 and the PCP 5500 which will respectively replace the 4000 and 5000 models, by providing 16Mb of memory on one RAM card. Is all this research and development to blame for Telematics’ past desultory performance? Well, partly yes.
Market access
Hightower admits that research and development ate 27% out of last year’s revenues and will munch through 18% this year, although he would like to see such costs as low as 12% soon. However, such costs are only part of the company’s problem: last year it had to write off a $4m investment in a product called GlobeNet which was designed to connect regional companies for packet-switching. The incident also led to the firing of the financial director who had signed a loan guarantee without priority agreement. Then there was poor Spectrum Digital Inc with its network access multiplexers, which lost around half its turnover – $4m – when its main customer Paradyne was acquired by AT&T. Without these non-operating losses, Hightower claims that the company would now be profitable. The company’s principal dilemma in terms of operating profitability is market access. To date Telematics has been very successful in striking OEM deals with companies such as, in the UK, ICL and Racal but this means that it is operating at very low margins – greater profits lie with distributors and direct sales. But at the moment Telematics has very little access to these two types of markets, and so Hightower is changing the US sales organisation to address these problems. In particular the sales team is going to hit the distribution market – this strategy won’t show through in the short-term, but Hightower looks as if he has enough staying power to see the new regime make it into a profitable business mid-term.
