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Tiny, inventive e.Digital gets boost from big partners
By Mike Drummond
STAFF WRITER
July 24, 1999
POWAY -- Someday soon, people may be able to harvest news articles,
e-mail and other bits of text off the Internet and listen as this
information is read aloud from portable devices.
The first steps toward that ambitious goal are happening here, inside
the offices of e.Digital Corp.
Giant chipmaker Intel is paying the Lilliputian Poway company for
research and development costs aimed at making new speech-to-text,
text-to-speech gizmos. The project, which began last year but stalled
when the companies dumped a third-party technology partner in favor of
another unnamed firm, remains hush-hush. The companies won't even reveal
drawings of what the device looks like.
Still, Skip Matthews, a senior project development manager for Intel's
Memory Components Division, coyly hinted at the project's capabilities.
"What if you had a device that could read The Wall Street Journal to you
while you're in your car?" he said, declining to elaborate.
(Matthews must have liked what he's seen at e.Digital. He announced his
retirement from Intel effective Aug. 1 to become a member of the Poway
company's board.)
E.Digital's quiet work with the world's largest computer chipmaker may
bode well for a company that has struggled for more than a decade to
turn a profit.
After laboring in red ink and relative obscurity, the rechristened
e.Digital -- formerly Norris Communications -- has signed deals that
have lifted the company's profile, as well as its once-anemic stock. The
partnership with Intel has helped. And while the company still operates
at a loss, e.Digital's fortune may be changing:
A two-year relationship with Lanier Worldwide bore fruit recently when
Lanier announced an initial $3 million purchase order for e.Digital's
line of digital recorders for doctors. Successors to the company's
first-generation "Flashback" recorders, which flopped commercially
earlier this decade, the devices can scan bar codes on patient files and
zap recorded notes directly into corporate computers.
In April, IBM selected e.Digital as one of five inaugural members of
the VoiceTIMES alliance, an initiative to develop standards for new
breeds of hand-held mobile devices. The other partners are Intel, Norcom
Electronics, Olympus and Philips.
That same month, Lucent Technologies selected e.Digital to work on a
new type of device capable of playing digital music downloaded off the
Internet.
The player, which e.Digital hopes to have ready for this Christmas
season, is designed to play music with Lucent's proprietary Enhanced
Perceptual Audio Coder format, designed to thwart unauthorized copying.
However, the device also will be able to play music in the controversial
MP3 format, a technology that shrinks CD sound files without major loss
of audio quality.
Lucent and e.Digital have yet to name a manufacturer that will build the
new consumer product.
The timetable for the digital music device is "aggressive," concedes
Fred Falk, e.Digital's 43-year-old president and chief executive. But
it's doable, he insists.
Falk's optimism is fueled by his belief that the world is ravenous for
new breeds of portable devices, and that major manufacturers will be
eager to feed the hunger.
Specialized speech-recognition and music over the Internet "are two of
the hottest technologies out there," Falk says.
E.Digital, he notes, has a foot in both camps. The company's crown jewel
is its patened Micro OS, a stripped-down mini-operating system designed
to run on small devices that use so-called flash memory chips --
postage-stamp sized memory storage cards that many of the newer digital
music devices are or will be using.
While e.Digital is a darling among investors on Internet chat rooms,
some critical observers are troubled that the company can't or won't
show off a prototype player and that it hasn't named a manufacturer this
late in the game.
Jim Seymour, president of the consulting firm Seymour Group, recently
wrote in TheStreet.com Web site that e.Digital may have superior
technology, but company executives are delusional if they think a
variety of digital music formats will coexist.
Seymour believes MP3, though audibly inferior to others, will be the
dominant standard. He evoked the VHS vs. Betamax scenario, where VHS won
because it established market share despite its shortcomings.
"If e.Digital does have the technically superior technology and
approach, but is (a) not focused on customers' requirements, (b) late to
market and (c) unfocused, then the mean-spirited ghost of VHS-Betamax
may indeed hover over this innovative company," Seymour wrote.
Earlier this decade, the company's Flashback digital recorder -- the
device that was supposed to doom hand-held tape recorders -- never
gained critical mass. Two years ago, the company shed its manufacturing
business and targeted developing technologies for equipment
manufacturers.
E. Digital is still not showing a profit. The company has lost money --
$2.7 million in 1998 alone -- over the past three years and likely will
continue to do so for at least the near term, according to its most
recent annual report, filed last month.
Revenues fell 60 percent to $426,350 in fiscal 1999, in large part
because the company sold the last of its Flashback recorders to Sanyo,
ending a revenue stream by attrition.
Yet e.Digital says it has one thing now that it didn't have even a few
months ago -- credibility.
The deals with Intel, IBM, Lucent and Lanier, "gave us credibility that
we were lacking for a long time," said Robert Putnam, long-time partner
with e.Digital founder Elwood "Woody" Norris and the company's senior
vice president.
Indeed, e.Digital's stock, which traded over the counter at just 5 cents
a share in January, jumped to more than $3 a share last month. The share
price has since settled to just over $2.
Norris, 60, has seen the $3,000 worth of shares he bought seven months
ago shoot to more than $106,000, an increase of more than 3,400 percent.
It may be no small coincidence that the stock upswing and the deals
occurred after Norris abdicated control of day-to-day business
operations. It's no secret that Norris -- a creative inventor with 19
domestic and more than 100 international patents under his belt -- is no
genius when it comes to management.
"He'll be the first to tell you he's not in the business side of it,"
said the 40-year-old Putnam.
Indeed, Norris admits he's never enjoyed management duties: "My role has
been better in the lab."
And so over the last few years, Norris has slipped out of the
executive's chair and into a lab coat, working more or less behind the
scenes at e.Digital, American Technology Corp. and Patriot Scientific
Corp. -- three companies he helped found.
Not surprisingly, the stock prices of American Technology and Patriot
Scientific have also bounced back up recently. In mid-July, American
Technology was trading at $7.371/2, while Patriot was at 61 cents, above
its 52-week low of 25 cents.
"One of the things we don't do around here," Norris says, "Is give up."
Copyright 1999 Union-Tribune Publishing Co. |
