Packeteer, Inc.

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Packeteer, Inc.

10201 North De Anza Boulevard
Cupertino, California 95014
U.S.A.
Telephone: (408) 873-4400
Toll Free: (800) 697-2253
Fax: (408) 873-4410
Web site: http://www.packeteer.com

Public Company
Incorporated: 1996
Employees: 304
Sales: $112.9 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: PKTR
NAIC: 541512 Computer Systems Design Services; 511210 Software Publishers

Packeteer, Inc., is the worldwide leader in improving network performance, controlling 36 percent of the global market for devices that manage bandwidth, control data traffic, and prioritize web site access. The company sells its PacketShaper and related devices to approximately 7,000 customers, a customer base comprised of corporate clientele and Internet service providers. Packeteer sells its products through more than 500 distributors and sales offices worldwide.

ORIGINS

Packeteer was the response of a group of accomplished executives to the growing problem of congestion on the Internet. Although there were a number of principal investors in the venture, Steven J. Campbell figured as the dominant personality, spearheading the effort to develop technology that would help network managers control the use of bandwidth, a vital resource always in declining availability. Campbell earned undergraduate and graduate degrees in electrical engineering from Oregon State University and Santa Clara University, respectively, beginning his career at Intel Corporation in 1972. After a six-year stay at the semiconductor maker, Campbell spent five years at a telecommunications company named Rolm Communications before founding StrataCom, Inc., a network-switching equipment company, in 1986. Network appliance giant Cisco Systems, Inc., purchased StrataCom in 1996, freeing Campbell to pursue his next venture, Packeteer.

Packeteer was formed in January 1996, joining the Internet sector during its early years of development. The company received its seed funding from Campbell and another seasoned executive, Joseph A. Graziano. A certified public accountant, Graziano joined Apple Computer, Inc., in 1981, five years after the computer maker's founding and three years before the company recorded its first commercial success, the Apple Macintosh. During this critical period in Apple Computer's development, Graziano served as the company's chief financial officer, a post he would leave in 1985 to serve in the identical capacity for Sun Microsystems, Inc., before returning to Apple Computer as executive vice-president and chief financial officer between 1989 and 1995. Once the start-up funding was in place by February 1996, the company turned to developing technology to manage a web site's outbound and inbound traffic, seeking to eliminate the stop-and-go transmissions and stuck server connections that plagued the Internet. Campbell, who had served as StrataCom's chief executive officer for the company's first six months of operation, assumed the same responsibilities at Packeteer during its first four months of existence before handing the reins of command to Craig W. Elliott. Campbell continued to serve as the company's chairman, a post he would occupy during Packeteer's first decade of business, while Graziano took a seat on Packeteer's board of directors.

Craig Elliott provided the leadership that helped Packeteer evolve from being a start-up without a product on market into a commercially active company, serving as the firm's chief executive officer and president during its first six years in business. Elliott earned an undergraduate degree in animal science from Iowa State University, but chose a career in an entirely different field, starting out as a salesman with Beacon Microcomputers. His big break came in 1984, when he became the top salesperson of the newly introduced Apple Macintosh, an achievement that earned him a new Porsche 944 and dinner with Apple Computer's cofounder, Steve Jobs. Elliott spent the next decade working for Apple Computer, serving in various executive positions related to marketing sales, and product development. When he joined Packeteer as its third employee in April 1996, he vacated his post as the international general manager of Apple Computer's Internet division.

Under Elliott's day-to-day supervision, work on the company's first product progressed at headquarters in Campbell, California, Packeteer's home base until it moved near Apple Computer's headquarters in Cupertino, California. Apple Computer became the first company to test Packeteer's flagship product, "Packet-Shaper," at a trade show in Las Vegas in the fall of 1996, the first round of testing before its commercial release. PacketShaper, a hardware and software device, enabled network managers to create and to enforce policies for assigning Internet and intranet access priorities, performing its tasks as it sat between the Internet access router and the web server. By the end of 1996, Packet-Shaper was being evaluated by Eagle River Interactive, a web site developer, and Concentric Network Corp., an Internet service provider, undergoing its last series of tests before being released on the market. The device began shipping in February 1997, registering particular success in Japan and Europe, a phenomenon anticipated by Elliott and his management team. In an August 11, 1997 interview with Electronic News (1991), Elliott explained the appeal of a traffic manager such as Packet-Shaper in international markets. "The need for bandwidth allocation and prioritization has become widespread," he said, "especially with the advent of 'push' applications that are flooding networks everywhere. But in Europe and Asia, where wide-area and Internet connections typically are much slower and much more expensive than in the United States, reducing 'world wide wait' is even more critical."

With a unique product to market, Packeteer set out to establish a lasting place for itself in the technology sector, targeting Internet service providers (ISPs) and corporate customers managing wide-area networks (WANs). The company's market presence would be built on the PacketShaper, which sold for $7,250 during its first year on the market, a device that was well received by industry experts. "They have a very important solution to a very pressing problem-the idea of managing bandwidth in the Internet," an analyst said in the August 11, 1997 issue of Electronic News (1991). "Given the desire of both organizations and carriers to try to leverage the Internet for commercial benefit, these sort of products are becoming increasingly important," the analyst continued. "The Internet is a fairly chaotic place to operate and without the sort of technology that allows you to control it, you are unlikely to leverage it to its full extent commercially."

COMPANY PERSPECTIVES

Packeteer bridges the gap between critical business applications and IP networks with an "intelligent overlay" of key technologies for WAN application optimization. Building on an organization's existing infrastructure, Packeteer's scalable platform ensures optimal delivery and performance of networked applications by consolidating best of breed and field proven technologies. Packeteer delivers the ultimate in application performance and end user experience through the PacketShaper family of scalable appliances. Bridging business-critical activities and IP networks, Packeteer provides unmatched application monitoring, shaping, compression, acceleration and management of application traffic across all WAN links.

PUBLIC DEBUT IN 1999

Despite the positive reaction from customers and pundits, the successful debut of PacketShaper did not eliminate the financial challenges facing Elliott and his management team. Years of annual losses loomed, making access to fresh supplies of capital a necessity to fund management's research and development and marketing programs. In the fall of 1997, the company secured a second round of financing led by a former StrataCom executive, William Stensrud, giving it an additional $4.5 million for a total of $10 million in funding. For its next infusion of capital, the company turned to Wall Street, completing its initial public offering (IPO) of stock in July 1999. Packeteer sold four million shares at $15 per share in its public debut, earning $54. 8 million to fund development and to help offset mounting losses. Not surprising for a start-up venture, Packeteer's losses exceeded sales during its first years in business. After incurring $1.2 million in losses in 1996 while it developed PacketShaper, the company posted a $5.9 million loss in 1997 on revenues of $1.4 million. The following year, sales increased to $7.2 million, but losses increased as well, swelling to $8.8 million. The pattern would continue as Packeteer entered the 21st century, putting mounting pressure on management to achieve profitability, particularly considering its status as a publicly traded company.

The increasing acceptance of PacketShaper offered encouragement to Elliott and his team that improved financial performance lay ahead. The device, bundled with software marketed as "PacketWise," was finding a receptive audience among corporate clientele and ISPs, winning the business of a diverse collection of businesses that included ExxonMobil, Liz Claiborne, Stanford University, and the U.K. Ministry of Defense, and service providers such as AT&T, Japan Telecom, and WorldCom. Hopes for profits also were buoyed by Packeteer's diversification, a move the company first made in 2000 when it entered the web acceleration market. The company unveiled the "AppCelera Internet Content Accelerator," a networking device for web site operators that compressed pages and images, accelerating the delivery of web pages by an average of 35 percent to 50 percent for 56 kilobits-per-second Internet connections. The technology for AppCelera, which sold for $10,000, was obtained through Packeteer's acquisition in July 2000 of a Canadian firm named Workfire Technologies, a $90 million deal that increased the company's debt but one that gave it a broader position in the market.

With its sights set on turning a profit, Packeteer entered the 21st century confident that PacketShaper, AppCelera, and its growing roster of hardware and software solutions would become a powerful financial engine. After weathering the collapse of the technology sector during the first years of the decade, the company began to record consistent profits on a quarterly basis, a welcomed sign after it posted a staggering $71 million loss in 2001 on $46.6 million in revenue. The celebratory mood at the company's Cupertino headquarters was dampened, however, when Elliott was forced to resign his position in May 2002 because of a serious medical condition. Campbell and the rest of the board of directors immediately began searching for a replacement, taking several months before they settled on a candidate, Dave Côté. Appointed president and chief executive officer in October 2002, Côté joined Packeteer after spending five years as a marketing executive at Integrated Device Technology, Inc., a semiconductor manufacturer. Before working for Integrated Device, Côté distinguished himself as a marketer at SynOptics, Inc., where his 16-year tenure included the launch of a line of stackable hub products that became a financial mainstay for SynOptics. For Packeteer, which had developed a reputation in some circles for enjoying greater success in developing products than in marketing them, the arrival of a skilled marketer seemed an ideal addition to the company's executive team. Packeteer's need for a marketing guru was not lost on Côté, who referred to the challenge facing him in a June 3, 2003 interview with Investor's Business Daily: "It's really to hone our message, to build a consistent story about the value proposition Packeteer provides. What we do is unique, and that's good, but that means you have to educate the market."

KEY DATES

1996:: Packeteer is incorporated.
1997:: The company begins shipping its first product, PacketShaper.
1999:: Packeteer completes its initial public offering of stock.
2000:: The acquisition of Workfire Technologies speeds Packeteer's entry into the web acceleration market.
2002:: Dave Côté is appointed president and chief executive officer.
2005:: Sales eclipse the $100 million mark for the first time.

FIRST PROFITS IN 2002

The beginning of Côté's tenure coincided with a milestone in Packeteer's history. In 2002, for the first time in its existence, the company posted a profit for a full year, recording $3.7 million in net income on $55 million in revenue. The financial success of 2002 set a precedent, ushering in a period of robust, consistent revenue and net income increases that thrust the company into an overwhelming lead in the WAN optimization market. Shortly after Côté took over day-to-day leadership of the company, it introduced "Packeteer," a device that represented more of a promotional tool than a technological advancement. Packeteer was a scaled-down version of PacketShaper, offering network monitoring only, one of many features included with PacketShaper. The device was part of the company's strategy to lure a customer with a less expensive product that would help educate the customer and, it was hoped, lead to a larger sale. "It all starts with knowing what's on the network," Packeteer's vice-president of worldwide marketing explained in a January 2003 interview with Business Communications Review. "If you can't see it, you can't control it, and if you don't understand how things are performing, how bandwidth is being consumed, it's really hard to even go about adding more bandwidth in today's market."

Packeteer's financial growth during the years leading up to its tenth anniversary put the company in a commanding lead in the WAN optimization market. After posting $3.7 million in net income in 2002, the company increased its profits in each of the succeeding years, recording totals of $11 million in 2003, $14.5 million in 2004, and $19.1 million in 2005. Revenues during the period more than doubled, swelling from $55 million to $112 million, which represented a 36 percent share of the global market. Projections for the future of the global WAN optimization market called for annual growth rates of nearly 19 percent until 2009, presenting Packeteer with significant opportunity as it pressed ahead and fought to maintain its lead in a fast-growing market.

PRINCIPAL SUBSIDIARIES

Packeteer Holdings, Inc.; Packeteer International Inc.; Packeteer Caymans (Cayman Islands); Packeteer Y.K. (Japan); Packeteer Asia Pacific Limited (Hong Kong); Packeteer Europe B.V. (Netherlands); Packeteer Technologies (Canada); Packeteer Australia Pty Limited (Australia); Packeteer UK Ltd. (United Kingdom); Packeteer GmbH (Germany); Packeteer SAS (France); Packeteer Aps (Denmark); Packeteer Singapore; Packeteer Korea; Packeteer Iberica (Spain); Packeteer Shanghai (China); Packeteer Beijing (China); Packeteer India; Packeteer Malaysia; Packeteer (Thailand) Ltd.; Packeteer Italy s.r.l.