From Microsoft to Intel, PC Titans Bet on Funky Tut for Networks
By SCOTT THURM
Staff Reporter of THE WALL STREET JOURNAL
PLEASANT HILL, Calif. -- Tut Systems Inc. has an idea that could change the way people use home PCs, and some computer industry titans
are lining up to help it.
Tiny Tut knows how to use phone wires to link several PCs, creating a
network within a household. Tut calls the technology "Home Run," and it has the potential to be at least a big hit in home-computing: Just ask anyone who has ever tried the complicated and mysterious task of
connecting two PCs to the same printer.
Compaq Computer Corp., Lucent Technologies Inc., Advanced Micro
Devices Inc. and others are licensing Tut's technology to produce
phone-networking devices for PCs, and a dozen more have agreed to
make it the basis of future offerings. The first generation of
phone-networking modems, priced at less than $100 each, is expected in
stores by Christmas.
Industry titans such as Microsoft Corp., Intel Corp. and AT&T Corp.,
meanwhile, are placing longer-term bets that Tut's technology will be a powerful stimulant for new computer sales. Those companies and others have invested $39 million in closely held Tut. Microsoft is its largest shareholder with a 13% equity stake.
Home-networking is piquing interest among computer giants for good reason: An estimated 15 million U.S. homes already have more than one PC. With modems coming to market this winter, advanced users will be able to link several PCs so they can share the same printer, high-speed Internet connection, file or even game. When PC makers such as Compaq start offering phone-networking devices as a standard option as soon as next year, the market could grow even more.
Fast and Cheap
Ordinary modems, of course, also use telephone wires to shuttle the ones and zeroes of computer data around. But those modems are relatively slow, and high-speed modems are expensive. Tut says its technology is fast and cheap because it works much as Morse code does: reading signals' duration, not their strength, as other modems do.
Tut isn't the only player in this game. One Sunnyvale, Calif., start-up, Epigram Inc., is working on a way to move computer traffic over phone lines 10 times faster than Tut can. And some of the companies licensing Tut's technology could someday cook up their own phone-line technology.
Ask Salvatore D'Auria, Tut's president and chief executive, what keeps him awake at night, and he'll recall visions of his licensees" logos. "It's important to be paranoid," Mr. D'Auria says.
And then there's the threat of competing
technologies: People may end up linking home
PCs using electrical power lines or radio
waves. Intel and Microsoft are also backing
ShareWave Inc., an El Dorado Hills, Calif.,
maker of wireless network technology.
"Those guys are playing all sides of the field,"
says Craig Driscoll of the Yankee Group
market-research firm.
For now, many analysts are giving phone-line networks the edge because the technology is available and relatively cheap. "For the next three to five years, the phone line is the way to go in terms of price and functionality," says Tony Grewe, business development manager for Lucent Microelectronics. But he adds: "Wireless in the long term may be the big winner."
Tut says its technology will work with any type of home computer. But the first generation of devices will work only on Windows-based PCs -- a far bigger market than Macintosh users. Companies have in the works some Mac-compatible products that are expected to follow the PC-friendly versions to stores, probably next year.
Enthusiasm for phone-line networking has propelled Tut toward an initial public offering of stock. It has registered with the U.S. Securities and Exchange Commission to sell as many as 2.875 million shares, priced from $14 to $16 each, in an offering originally slated for last summer. Following recent turmoil in financial markets, the company has the IPO plans on hold.
Despite its big idea and roster of rich corporate backers, Tut faces an odd identity problem. It is best-known for its phone-line network technology, yet it decided long ago it wouldn't get rich making a tiny piece of a chip or a card that slips inside an inexpensive, mass-marketed computer.
'Black Boxes'
So Tut lets licensees come up with products that use its technology. The company expects just a small fraction of future revenue to come from licensing pacts. For its bread and butter, Tut focuses on a far less glamorous task-selling "black boxes" that route computer data over phone lines to corporations, universities, and phone companies. "We are a system company," says Mr. D'Auria. "We sell black boxes. We don't make our business selling technology."
These days, Mr. D'Auria is especially interested in selling the boxes to apartment buildings and hotels that offer high-speed Internet access in apartments and rooms. "We're growing a much bigger opportunity we think is significant," he says.
Tut lost $6.8 million in the first six months of 1998 on revenue of $4.5 million, compared with a net loss of $3.3 million on revenue of $2.5 million in the year-earlier period, according to its IPO documents. Since it was founded in 1991, Tut has lost $36.2 million.
The company was the creation of Martin Graham, a retired electrical engineering professor at the University of California, Berkeley, and Matthew Taylor, one of his former grad students. Mr. Taylor, 39, is now Tut's chairman and chief technology officer, with a 4.4% stake. Dr. Graham, age 72, no longer has a formal role at Tut but still owns 1% of the equity.
Dr. Graham is a man who holds 33 patents and uses a Gap shopping bag for a briefcase. "I work on peculiar problems and come up with strange solutions," he says. His original name for Tut was Tutankhamon Electronics, and his corporate slogan was "Ancient solutions for modern problems." The company no longer uses the slogan.
Robert Frankston, a legendary computing pioneer then working for Microsoft, was trying to link computers without stringing new wires. At his urging, Dr. Graham began experimenting on the phone lines in his Berkeley home. "Tut had a reputation for pushing bits faster over [phone] wire than was commonly thought possible," Mr. Frankston says.
It took Dr. Graham three months to figure out how to move information over phone lines at one megabit per second -- roughly 17 times faster than typical modems did. His solution for encoding computer signals has more in common with World War II radar systems than with modern data networks.
Tut breaks other high-tech stereotypes. The youngest member of the management team is the 35-year-old vice president of marketing. The 43-year-old Mr. D'Auria, a veteran of the Peace Corps, Hewlett-Packard Co. and a software start-up, joined Tut in 1994. He says the management lineup reflects his preference for people who can straddle the "new" world of computer communications with the "old" world of telephones.
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Is anyone able to comment on this company's strategy, technology ? Enjoy reading the thread.
Regards,
Denis
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