Asanté Technologies, Inc.

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Asanté Technologies, Inc.

821 Fox Lane
San Jose, California 95131
U.S.A.
(408) 435-8388
Fax: (408) 432-1117
Web site: http://www.asante.com

Public Company
Founded: 1988
Employees: 197
Sales: $67 million (1996)
Stock Exchanges: NASDAQ
SICs: 3577 Computer Peripheral Equipment, Not Elsewhere Classified

A fast-growing but young company, Asanté Technologies, Inc. is a leading producer of computer networking products for graphic and image-intensive applications used by departmental and workgroup networks, otherwise known as Local Area Networks (LANs). The company makes Ethernet products for Macintosh and PC computers, including bridges, hubs, and routers, facilitating information transfer over the most popular networking protocol. The company also offers LAN switches and web-based network management software and network acceleration tools. The company’s adapters (including EtherPaC, MaCon, and NetDock) connect Macintosh and IBM-compatible computers and peripheral devices to Ethernet networks. The company’s network interconnect devices include hubs and bridges (NetStacker, AsantéHub, and NetExtender), network management software, and networking products (AsantéFAST series) for the high-speed Fast Ethernet technology. Asanté’s target market is small to medium-sized companies and departments within larger corporations. Products are marketed through distributors in 36 countries, value-added resellers, system integrators, and independent sales representatives. In addition, a direct sales force targets higher education customers.

In 1988, Asanté was founded in the corner of a small Silicon Valley warehouse. Cofounders Jeff Lin and Wilson Wong, both37, were electrical engineers who had immigrated to California before the age of 30. Lin, from Taiwan, and Wong, from Hong Kong, met at a Chinese Christian Church in Mountain View, California, in 1983, when both were working as electrical engineers. They went on to work together at a since-defunct networking company in Mountain View. Together, they left their jobs, created their company and christened it Asanté (from a French toast meaning “to your health”), choosing the name because it begins with the letter “A,” and would therefore be placed at the beginning of catalog listings. In the early days, Lin and Wong—both workaholics—often brought sleeping bags to their warehouse office in Sunnyvale, California, working 24 hours straight, napping briefly, and then working 12 more hours.

The cofounders’ business goal was to provide services and products to make computer networking easy and affordable, by designing, manufacturing, and marketing Ethernet networking products. Originally, Asanté found its niche through manufacturing products for the Macintosh, connecting Mac computers in networks much faster than the Macs’ built-in LocalTalk. The computer networking industry had largely focused on linking various IBM-compatible networks, and had not emphasized Macintosh networking. The company’s cofounders chose to focus on Macintosh to achieve better profit margins, aiming to be number one in one segment, rather than number three or four in several PC segments with hundreds of competitors. In 1989, Asanté shipped its first Ethernet adapter card for Macintosh computers, and in that fiscal year, the company brought in $94,000 in net revenues. In 1990, the company shipped its first non-intelligent Ethernet hub. In these first years, Asanté’s primary market was educational, with universities comprising 85 percent of sales.

By 1991, Asanté was the top manufacturer of Macintosh adapters in the world. Apple Computer was both a partner and a competitor for Asanté: the company manufactured the products which made Asanté’s Ethernet adaptors necessary, but at any moment Apple could decide to provide connectivity internally, choking Asanté’s sales. Asanté’s market share was 34.5 percent in 1991, with Apple at 23.5 percent. Hexing its competitive muscle, Apple presented a major challenge to the company in October of 1991, when it began shipping its high-end Quadra computers with Ethernet cards installed.

Forced to compensate for the decreased demand for Ethernet products by consumers of new Macintosh computers, Asanté diversified. In 1991, the company assembled a hub engineering team to design products for IBM-compatible computers, in order to generate additional revenues for the company. In 1992, it entered the PC market with Ethernet adapters, while continuing to maintain its Macintosh business. Following a marketing plan spearheaded by vice president of sales and distribution Ronald Volkmar, the company garnered its resources toward the development of new market products, shipping hubs, network management software, and PC Ethernet cards between 1992 and 1994. The addition of the line of PC products made Asanté one of the industry’s most complete providers of families of Ethernet adapter cards for both PCs and Macs. The company moved its headquarters from Sunnyvale, California, to a much larger space in San Jose. Sales for 1992 were $47.5 million, over 500 times greater than revenues achieved only three years earlier in 1989.

The company went public in 1993 with fiscal year end sales of $67.2 million and income of $2.1 million. That year, Asanté was the first company to support the new Macintosh computers, continuing to lead the Macintosh Ethernet connectivity market while making parallel inroads in the PC market. The company’s efforts that year were directed toward entering the realm of networking enterprise systems with thousands of nodes (work stations), where it would compete with major players such as SynOptics, Cisco, and IBM. Continuing to introduce leading new products, the company advanced the smallest Small Computer Systems Interface (SCSI) Ethernet adapter, for Apple Powerbooks. A 72-port intelligent Ethernet hub (a hub capable of monitoring networks and network management software for LANs) was debuted, and the U.S. Department of Commerce named the company “Minority Manufacturer of the Year” for 1993.

In March 1994, the company introduced NetStacker, the industry’s first “stackable chassis.” Asanté entered the remote local-area net access market with its NetConnect-Remote Access Server that year. The company continued to garner public acclaim, rating 19th on Business Week’s 1994 “Best Small Company” list and 29th on Fortune’s ”Fastest Growing Company” list. Sales in 1994 continued to leap forward, increasing 16 percent to $79.9 million with a $1 million surplus. The company brought in Ralph Dormitzer, of Digital Equipment Corp., as president and CEO, with the goal of bringing sales to $100 million.

Despite such success, the company suffered from a drop in market share due to increased competition in 1995, bringing a 24 percent decline in sales to $60.9 million and a net loss of $3.7 million. The competition that spurred the sales loss was primarily due to Apple Computer’s incorporation of Ethernet connections into the motherboards of more Macintosh and Powerbook computers. To address this problem, Asanté streamlined operations, lowered some of its prices, and began to offer lifetime warranties on hub and adapter card products. New products introduced in 1995 included AsantéFAST 100 Hub (the industry’s first stackable Fast Ethernet managed hub) and Ready Switch (Asanté’s first switch product).

In 1995, sales to wholesale distributors made up 45 percent of the company’s revenues. Cofounders Jeff Lin and Wilson Wong each owned 16 percent of the company, while Eugene Duh, of Orient Semiconductor Electronics in Taiwan, owned 14 percent. Seventy-two percent of sales were within the United States, with 16 percent in Europe and 12 percent in Canada and the Pacific Rim. The company settled a lawsuit, which had been filed by Synoptics in 1994 alleging violations of federal securities laws, entering an agreement that cost $2.6 million, with $520,000 paid for by the company’s insurance. Specifically, Synoptics had charged that some of its former employees, since employed at Asanté, had implemented SynOptics’s software code into Asanté products. Due to the large portion of the settlement which was picked up by Asanté’s insurance, the settlement had no major impact on revenues.

The company seemed to be on the road to recovery in 1996, with a 10 percent gain. The increase was primarily due to a large number of shipments of Fast Ethernet and new switched products, as well as stackable and unmanaged hubs. The company also expanded its efforts to sell to original equipment manufacturers (OEMs), and courted larger OEMs for contracts. Management was strengthened, with the appointment of a new CFO and vice president of sales, as well as a new vice president of engineering. Despite the loss in 1995, Asanté was ranked the 10th fastest-growing (networking) company of 1990-95 by NetworkWorld Magazine, and the company received the Top 50 Award (for the second consecutive year) from Deloitte & Touche as one of the fastest-growing companies in the Silicon Valley.

Company Perspectives:

Asanté Technologies, Inc. is a leading provider of high-performance, end-to-end intranetworking solutions for graphics and image-intensive applications. The company’s goal is to provide services and products to make computer networking easy and affordable, by designing, manufacturing, and marketing Ethernet networking products. Asanté sells its products through distributors and supports this distribution channel with marketing and promotional programs and a network of direct sales and service personnel. The management and Asanté team are focused on realizing milestones to meet the challenge of growing the Company as a premier supplier of high-speed Intranet switching solutions.

New product development and market segment entry continued, as the company moved into the switched Ethernet market with several workgroup and segmentation switches. The company also serviced publishing and prepress markets with networking solutions via its combined Fast Ethernet and Net Doubler network acceleration tools. IntraSpection, an innovative, Intranet-based network management program for Windows NT servers became the industry’s first open software system or Intranet-based network management. IntraSpection allows network managers to initiate device queries that set off Simple Network Management Protocol-based polling of their networks or to view graphical maps that are automatically updated as network changes occur.

All told, sales reached $67 million in 1996, and the company was ranked the Number Five Fast Ethernet hub provider in the country by the Dell’Oro Group. However, revenue growth was less than the company’s increased operating expenses, and the year ended with a small loss of $457,000 on a 10 percent increase in revenues. After its setback in 1995, Asanté had backtracked and regained, more or less, its revenue position at the time of its public offering in 1993. The ratio of U.S. to foreign sales was consistent with previous years, at 23 percent (as compared to 28 percent in 1995 and 22 percent in 1994). In the third quarter of 1996, the company added to its international sales offices in the United Kingdom, Taiwan, and Canada, establishing a new location in Japan.

By the second quarter of 1997, Asanté again reported strong sales results, with net income of $448,000 on $21.2 million in revenue, an improvement over a loss of $520,000 on $14.8 million for the same period the previous year. Sales figures for the first six months of fiscal 1997 were equally improved, with a 24 percent increase over the previous year. The improvement was attributed to a new line of switches and Web-based network management software.

A Look to the Future

The company has identified four trends affecting the future growth and success (or vulnerability) of its business in the late 1990s: 1) the adoption of switched Ethernet technology, 2) the adoption of Fast Ethernet products, 3) the use of “Intranet” software technology in corporate LANs, and 4) the gains in market share of Microsoft Windows NT. Future success will depend on the ability of the company to respond to the markets corresponding to these trends, and to accurately forecast sales and assembly lead time so as not to lose sales to competitors. Such predictive powers are essential competitive tools, because the distribution of the company’s products in its first decade of existence has been characterized by rapid change, consolidations and financial problems suffered by distributors, and emerging alternate distribution channels. At the same time, high competition means that distributors may stop marketing the company’s products at any time at their own discretion, and without notice to the company. Declines in average selling prices and improvements in product features and performance enhance the competitive environment, in which many of the company’s challengers are more established and have more resources and name recognition. For this reason, Asanté must always keep on its toes, one step ahead of the market and its competition. In the mainstream market, the company’s primary competitors are Cisco Systems, Bay Networks, 3Com, and others.

Another potential threat to the company’s continued success is the unpredictability of actions by Apple Computers. As it did in 1991, when it made Ethernet connections available in its computers for the first time, Apple can steal business from Asanté with no warning through new products which increase the availability of Ethernet on the motherboards of new computers. While Asanté has achieved successful penetration of the PC market, it continues to depend on Macintosh users, and such aggressive strategies on the part of Apple computers would adversely affect sales in the future, threatening the profitability of the company. If the company can manage to simultaneously maintain a competitive edge in both the Macintosh and PC markets, it will continue to maintain its status as a fast-growing and flexible winner in the Ethernet connection market.