Digi International has restructured for growth
Sheila Lalwani
Star Tribune
Monday, August 20, 2001
When Joseph Dunsmore took over as CEO at Digi International Inc. two years ago, he inherited a near mess. The Minnetonka-based company, which
makes the wires and plugs that help connect computer and network systems, wasn't doing well.
In the first nine months of its 1999 fiscal year, Digi's net income had plunged 96.7 percent from a year earlier to $500,000 and the price of its shares had
fallen. What's more, Dunsmore was the third chief executive in less than 10 months at the company.
But since then, Dunsmore has repositioned Digi by launching a new product line, making several acquisitions and opening an office in Asia.
Things are looking brighter for Digi these days. Through the first nine months of its current fiscal year, Digi posted net earnings of $2.1 million, in contrast
to a net loss of $9.8 million in the year-earlier period. Its stock price is recovering from its 52-week low of $4.50 to around $8 a share these days.
Having gotten its financial house in order, Digi is pressing on the product front. The company launched a new product line called Connectware, its first for
systems that control wireless applications. Digi is aiming that product line at the retail, hospitality and industrial automation industries. Connectware is a
line of wired and wireless products that links devices to networks.
"It's not like we are resting on our laurels," Dunsmore said. "We are expanding."
Analysts agree, but they are concerned that Digi's new Connectware products move the company into markets occupied by the likes of Cisco Systems and
Lucent Technologies -- companies with more manpower and more money to spend that are just as hungry for sales and revenue these days. The analysts
note that Lucent and Cisco have been in the market longer than Digi and are established brands.
Phillip Redmond, research director at Gartner Group, said Digi's advantage over the larger companies in all this is that the company has superior
technology to its competitors and that its approach focuses on specific industries. He added that the general technology produced in the market needs
improvement but that he wonders whether Digi can do that.
As Redmond sees it, the key test for Digi will be the partnerships it makes with other companies that will bring it business and how well it makes good on its
product and service promises.
"[Digi has to] move quickly before bigger companies dominate and it's too late," Redmond said.
Although Digi's earnings are better than in previous years, Dunsmore said he is intent on making more acquisitions to boost revenue growth. That's why he's
planning to tag along with Minnesota Gov. Jesse Ventura on an international trip in November to drum up business.
Dunsmore, a Minnesota native who has worked at Lucent and AT&T Corp., said he is serious about Digi's survival.
"We are here for the long run," he said. "The reason I came here is to build a company." Digi was founded in 1985 and went public in 1989. It has offices in
Sunnyvale, Calif., and Asia and employs about 525 people.
Burk Murray, vice president of marketing and management, said Digi continues to work on improving its products so that they more seamlessly fit
customers' needs. For that purpose, the company has created DigiLabs, an in-house research and development apparatus the company says is
customer-focused. A key goal at DigiLabs -- unusual for a product developer -- is to get and use customer feedback early in the development stage.
One result of the DigiLabs' process was that in May, Digi introduced PortServer, the company's latest product that connects clusters of serial ports to wireless
networks.
Clint Morrison, research director with Minneapolis-based Miller Johnson Steichen Kinnard, said it is wise for Digi to pursue both wired and wireless product
lines because that strategy fits with the company's plan to build a bigger customer base in the industrial automation sector.
But Digi still faces challenges, he said. "They largely turned themselves around," Morrison said. "They have pretty much fixed their balance sheet. The key
here for them is to generate some growth."
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