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Tighter marketing focus follows $86 million loss for year -- Revamped Ross pins its hopes on workstations
By Craig Matsumoto
Anaheim, Calif.- Workstations might be an unlikely place to start a new life, but Ross Technology Inc. is banking on a rebirth in that market, after a near-fatal year of losses.
In an interview, Ross's director of marketing, John Rasco, discussed the company's recent troubles-including a tectonic shift in executives-and its hopes that a marketing push targeting specific markets can turn the company's fortunes around.
The new strategy follows a shakeup in Ross's management team, culminating in the departure of co-founder Roger Ross in March. Other executive changes include a new chief financial officer, a vice president of sales, and new chief executive Jack Simpson, formerly senior vice president with Scientific-Atlanta Inc. (Atlanta), who was appointed May 22.
The team arrives at the end of a rough year. For its fiscal year ended March 31, Ross reported losses of $86.7 million compared with profits of $18.2 million the previous year, with revenues dropping to $83.1 million from $100.8 million a year ago.
"It's going to take a while for them to turn things around," said Eric Boyce, analyst with First Dallas Securities (Dallas)
Rasco agreed that prosperity isn't waiting around the next corner. "We have to have competitive products [first]," he said.
Ross's slump can be traced to one miscalculation. Originally a Sparc microprocessor vendor, the company was expecting to make margins on a par with microprocessors when it announced its workstation plans a year ago. That implied breaking the name-brand barrier of Sun, and Ross's technical achievements were not enough for that task.
"They went into this whole workstation mode thinking they could take probably the upper 10 percent of the 32-bit Sun crowd," Boyce said. "They talked about having a two-, maybe three-year window" while users waited for 64-bit software to be developed.
Roger Ross's departure was described as a mutual decision born of the shared belief that the company had outgrown his abilities.
"We were very much a technology-oriented company," Rasco said in the interview, which took place at last month's Design Automation Conference. "Roger Ross was a brilliant computer architect but, like a lot of entrepreneurial hardware companies, you get to a point where the business is not manageable by a [technology] person."
Ross's new management team faces a five-year plan to move revenues from the $100 million plateau to $500 million. Revenues will probably be around $70 million this year, Rasco said.
Despite suffering an initial rout, Ross remains committed to the systems business. "It has not been what we thought it would be, but the game is not over," Rasco said. In addition, a couple of key points need to be smoothed over, such as OEM sales of Ross's microprocessors.
"We'll be a little bit more focused on OEM sales than we were last year," Rasco said. "We started the systems business and said, 'Hey, we're gonna hit this one out of the park.' But the little underhand throws that are the OEM business, we took our eyes off . . . . That's what happens when you're an itty-bitty company trying to do too much at one time," Rasco said.
Ross is moving into systems partly as self-defense against price cuts by Sun. To migrate its users to 64-bit computing, Sun has been cutting the prices of those parts, sometimes by as much as half. Ross's own 32-bit products wound up being costlier than Sun's 64-bit products.
"We'll build a systems business expertise, so if we don't have a design win with our 64-bit processors, we will have a systems company," Rasco said.
Demand for 32-bit computing remains strong despite Sun's price cuts. "People are still buying 32-bit, and they're paying 3x premiums to get it," Rasco said.
Ross's own 64-bit effort, aimed at the Ultrasparc market defined by Sun, is the Viper microprocessor, being developed now and due for release next year.
Ross unveiled at DAC its quad systems, four-CPU units that outdo the more common two-CPU boxes sold by the competition, Rasco said. Among the product's targets is the EDA market, where the demands of verification and simulation software are bogging down company servers, Rasco said. The company also is introducing what it calls the first Sparc workstation in mini-tower format.
But behind all of Ross's efforts is the shadow of Intel. Rasco and DAC keynoter Michael Aymar of Intel Corp. showed forecasts from International Data Corp. predicting that nearly all of that growth will come from the Intel platform. Traditional workstation platforms will be a flat source of revenues from here on out.
Talk of targeting a limited market sets financial types on edge. "[Ross executives] claim all they want is a little piece of the pie, which I thought was suspect," Boyce said. He continues to follow the company from a distance, but he admitted, "I liked them a lot more when they were a chip company."
What has saved Ross from oblivion has been the faith of majority owner Fujitsu. When Ross fell to its nadir in February, announcing the company would collapse without new funding, Fujitsu helped secure a $50 million credit facility with Dai-Ichi Kangyo Bank Ltd. "I think they'll be around for the long haul," Boyce said of Fujitsu.
Profitability remains a question and, Boyce admitted, "I don't expect anything in fiscal 1998." But as difficult as the workstation market has become, Ross might have a future. Boyce has found a groundswell of employee support. "Just from the people I talked to, there's a sense of optimism that they can get through it," he said.
Copyright (c) 1997 CMP Media Inc.
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