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JAMES FLANIGAN

The Ties That Bind Computers Also Can Liberate Companies

July 11, 1993|JAMES FLANIGAN

Just as you can "see a world in a grain of sand," as William Blake put it, so you can understand a lot about the world economy from one of its fastest-growing businesses.

Computer networking is the business, but don't be put off by technical jargon. It's a field in which many companies, some quite small, are expanding rapidly by enabling computers to talk to each other with ever greater speed and content.

What the business tells you about the world economy is that the race is to the swift and there's little time for planning. It tells you why large organizations so often get left behind by small ones, why all is global and no business is domestic, why hot stocks are erratic but worth a look. And--a big bonus for California--it tells you why the brains and energies available in this state make it, still, a good place to do business.

The full promise of computer networking--allowing work to be shared effortlessly among all corners of the globe, bringing movies on demand into homes and more--will take some years to develop. But it will come.

And SynOptics Communications Inc. hopes to be part of it. SynOptics, an entrepreneurial high-flyer based in Santa Clara, was founded in 1985. Stock it sold to the public in 1988 at $2.25 a share is now selling at about $37 a share. The firm has gone from $40 million in sales five years ago to more than $700 million expected for this year.

But it's SynOptics' origins that speak about the world around us.

The company comes out of Xerox Corp.'s famed Palo Alto Research Center, or Xerox Parc, a technology laboratory set up by the copying machine firm in the 1970s to explore developments in imaging, computing and communications. The Parc was a font of invention, pioneering just about every bright feature of personal computers, from graphic displays to the "mouse" that controls them.

Yet giant Xerox couldn't figure out how to commercialize those innovations. Then-tiny Apple Computer and Microsoft turned them into profitable products.

Similarly, Xerox in 1985 saw only limited use for a fiber-optic communication link for personal computers. So it asked two of its employees--Andrew Ludwick, then a 39-year-old Harvard M.B.A., and Ronald Schmidt, a 40-year-old Ph.D. in electrical engineering and computer science from UC Berkeley--to seek out a commercial developer. With difficulty, the two men raised seed money, founded SynOptics and promptly developed a way to link computers with ordinary, low-cost telephone lines.

And their business took off.

Xerox, to be fair, had been ill-advised by American Telephone & Telegraph and other big telecommunications companies. "They thought a computer network was impractical unless they could plan to bring it to 10,000 outlets," says William Lanfri, SynOptics' vice president for technology. But SynOptics' founders decided to sell their computer links to whomever would buy them and worry about large-scale problems when, and if, they arose.

As a result, SynOptics became an early leader in local area networking, a thriving part of the worldwide information technology business. It's a wide-open field in which small- and medium-sized companies such as Gateway Communications, Cisco Systems, Cabletron and Chipcom mingle with AT&T, IBM, Digital Equipment Corp. and Intel.

Activity in computer communications is so hectic that it recalls historic periods of great innovation and ferment: the inventions of cotton-spinning machinery by Arkwright and others in 1770s England; the automobile developments of Ford, Dodge, Olds and Buick in 1900s Detroit.

SynOptics currently is expanding manufacturing and employment in Santa Clara and Sunnyvale--seemingly high-cost locations. But William Ruehle, the firm's vice president of finance, doesn't think in those terms. "We use the 'virtual corporation' model of the '90s," he says. "We subcontract routine manufacturing and electronics, but retain all operations in our core competence--major switching. If we pay more per square foot of factory space, it's worth it to to keep manufacturing and engineering together."

SynOptics is growing fast, even in recession-hit Europe, because companies everywhere are decentralizing for efficiency. "It's when business is slow that companies use computers to boost productivity," explains analyst Paul Weinstein of Kidder Peabody.

To be sure, computers are not yet telephones; networks can now share files easily among offices in nearby buildings, but not yet across the country. What all companies are aiming for is an advanced system that will allow people around the world to work as if they were in the same room. "Boeing will be able to design planes much more quickly with engineers in Renton, Wash.; Wichita; Philadelphia and Tokyo working on the same information on essentially the same screens," Lanfri says.

Thus information and global vision become competitive advantages.

And vision pays off. SynOptics has been a very hot stock, rising 40% to 60% a year in trading on the NASDAQ since its founding. No one knows if it can keep that up even if, as expected, it announces increased quarterly earnings this week.

Stocks of technology companies rise and fall seemingly on market whims; volatility is the price of being young and aggressive. On the other hand, an increase in SynOptics' market value from $130 million in 1988 to more than $2 billion in 1993 is the reward for daring and success.

The moral: We in California have a messy system that seems to defy planning. But it gets results.

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