Packeteer, Inc. (PKTR)
2003 Interview with:
Dave Cote, President and CEO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their
application traffic management systems that enable businesses to gain visibility and control of networked applications, extend network resources and align application performance with business priorities.

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IT departments of global corporations and small to medium enterprises are implementing Packeteer's application traffic management systems

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Service Providers

Packeteer, Inc.

10495 N. DeAnza Blvd.
Cupertino, CA 95014
Phone: 408-873-4400

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Dave Cote
President and
Chief Executive Officer

Interview conducted by:
Walter Banks
September 2003

Dave Côté has served as President, Chief Executive Officer and director of Packeteer since October 2002. From April 1997 to October 2002, Mr. Côté served as Vice President of Worldwide Marketing and Communication ASSPs (Application-Specific Standard Products) for Integrated Device Technology, Inc., a semiconductor company. From January 1995 to November 1996, Mr. Côté served as Vice President of Marketing and Customer Support for ZeitNet Inc., which was acquired by Cabletron in 1996. From 1979 to 1995, he served in various marketing and sales positions, most recently as Director of Marketing at SynOptics, Inc. (now Nortel Network). Mr. Côté holds an M.B.A. in business administration from California State University at Sacramento and a B.S. from the University of California at Davis.

Company Profile:
Packeteer, Inc (NSDQ: PKTR) is a leading provider of application traffic management systems that enable businesses to gain visibility and control of networked applications, extend network resources and align application performance with business priorities. For service providers, Packeteer systems provide a platform for delivering application-intelligent network services that control quality of service, expand revenue opportunities and offer compelling differentiation. The company’s products are sold through more than
100 resellers, distributors and system integrators in more than 50 countries.

Packeteer’s application traffic management solutions offer customers control over networked applications, extend network resources and align application performance with business priorities. Packeteer also provides application traffic management solutions designed to enable delivery of differentiated services and guarantee service levels while extending WAN resources.

PacketShaper® is an application traffic management appliance that ensures business applications perform efficiently and reliably over the WAN and Internet. PacketShaper provides Layer 7 visibility and several levels of policy-based control to actively manage network and application performance. PacketShaper® Xpress™ is an optional upgrade for the PacketShaper that offers universal traffic acceleration to increase available bandwidth and accelerate the performance of networked applications. PacketSeeker™ is an application traffic monitoring appliance that provides visibility into network and application performance. Transparent to network infrastructure, PacketSeeker automatically identifies applications, tracks bandwidth utilization, network efficiency, application health, application response times and service levels, and can be configured to proactively notify you of changes in performance.

CEOCFOinterviews: Mr. Cote, where was Packeteer, Inc., when you became its CEO and what changes did you orchestrate?

Mr. Cote: “I joined Packeteer, Inc. in October of 2002. Since I have been here, we hired a gentleman by the name of Ajmal Noorani as Vice President of Business Development. He joined us in April of this year to help us build strategic partnerships with global implementers of technology such as systems integrators or outsourcers with global service providers. He helped to build on our relationships with NTT Communications in Japan, and Equant globally, and to build additional relationships in the service provider space. He builds relationships with people who offer our products as part of a service to their customers, looks at other technology and vendor partnerships and ultimately is the man leading any sort of M & A activity that we want to do.”

CEOCFOinterviews: Was he hired as a result of something that you saw needed to be done?

Mr. Cote: “We sell our products through channel partners, but I felt that we did not have enough relationships or enough activity with some of the large global players. As we begin to see our products being implemented into larger installations and companies that are global in nature, we need more of those kinds of relationships. There have been other business development activities in the past, but when I got here, no one was working on that.”

CEOCFOinterviews: How much of an impact and change can that bring about?

Mr. Cote: “These kinds of relationships take awhile to get off the ground. I would expect to see it impact us sometime next year. I look at the work we have done in Japan with NTT Communications and they are getting us engaged with a variety of different large industry partners there, such as large banks, manufacturing firms and even department stores. I think they have the opportunity to provide great leverage to us. I would not put a dollar amount on it now, but it could have a significant impact on our business.”

CEOCFOinterviews: Currently, is most of your revenue generated through enterprise or through service providers?

Mr. Cote: “Most of our revenue is generated through our enterprise customers. Our sales are based on an indirect model through system integration and channel partners but our target end-customer is primarily enterprise customers. A good portion of our business with service providers, which is probably in the 10 percent range of the business, is offering our product as part of a service or solution that they, in-turn, offer to enterprise customers. We also do around 10 percent of our business with education, largely with universities here in the United States.”

CEOCFOinterviews: Will you tell us about your revenue model?

Mr. Cote: “We sell our product as an appliance that is a combination of hardware and software. It is delivered as an appliance that may fit in a rack within a customer’s data center.   It is difficult to unbundle the hardware from the software. I would say that our primary value added is in the software but is delivered on hardware. We do about 85 percent of our revenue in product sales, meaning the system of hardware and software. We do about 15 percent of our business in service and support contracts. In many cases, we will sell a service and support contract along with that initial sale, so people would buy anywhere from a one-year to a three-year support contract that provides them a subscription service to update our software. In some cases, they buy a more complete service package that includes hardware warranty and hardware maintenance types of activities. Very often, that is sold with the initial installation.”

CEOCFOinterviews: You can still generate revenues with upgrades, is that correct?

Mr. Cote: “Revenue can also be generated through system upgrades. Additionally, if you look at the initial installation, we are not saturated in many accounts, meaning that they do not have our products in all the places that they could. There is both the opportunity for upgrades and the opportunity to expand the installation as they see more value in our product.”

CEOCFOinterviews: Everything we do is always growing because of data and voice, therefore the need to move information easily over a network, is increasing, therefore increasing the value of what you do; is that correct?

Mr. Cote: “Our core benefit is that we give people visibility into the applications that are running on their network. Surprisingly, many IT folks do not know what applications are running on their networks. They may know the important business applications, but as they use the Internet as a vehicle for delivering the network outside of their own buildings, they are subject to a lot of different traffic types that they may not be aware of.

By giving people the visibility into applications running over their network, and following that with our control technology, they can now apply policies to prioritize or protect the important applications and minimize or block the unimportant ones. Companies with the most interest in this technology are those with large networks that stretch from one end of the globe to another. We think that in some respects the market is coming towards us, or we are heading towards it. People need to know what is running on their network and get control over it and we have a unique ability to do that in our product.”

CEOCFOinterviews: What is the barrier to entry, and what is the competition like?

Mr. Cote: “Interestingly, our primary competition is people looking to add bandwidth. The notion that if there are congestion problems in the network, all you have to do is double your bandwidth is the primary competition against our technology. We not only have different traffic types, or different applications, but we have different traffic types that have different characteristics of how they operate on the network. Often you will get web-oriented types of operations that are very versatile; they will take up as much bandwidth as is available. The ability to go in and manage these different types of traffic is important. Just adding bandwidth does not necessarily mean that the bandwidth goes to the applications you want it to and I think that is beginning to resonate. That has been our primary competition, and to some degree, what is called QoS (Quality of Service) in routers. For those people, and many of our customers that are looking for very detailed Layer 7 classification of application, we are the premiere in that camp. We have a couple of smaller pre-public companies that compete more directly with us in providing a system or a product that attempts to do what we do. We have 75 to 80 percent market share in the specific bandwidth management application performance space that we operate in.”

CEOCFOinterviews: What differentiates you from those other players?

Mr. Cote: “What differentiates us is primarily in our very deep classification at Layer 7. Our ability to literally classify an operation is somewhere in the order of 400 different applications that give our customers great insight of what is running on their network, and the specific technology that we use in setting policies for controlling those applications, which is patented technology called TCP Rate Control. We do not let data depart until we know it can land. That ability to provide granular rate control across the network gives our customers predictability in being able to prioritize or block or minimize unwanted traffic, and that is different than our competition. Therefore, it’s the visibility and the ability to then granularly control are two key advantages over the competition and the ability to provide centralized reporting on top of that to give insight at the network level as well as at the specific location. So as our products sit they give people a lot of good information to manage their network.”

CEOCFOinterviews: What is your R& D investment and will growth come through marketing new products, enhancements to current customers, or building out your customer base?

Mr. Cote: “We are a new products business and a new product company. We will continue to provide additional capabilities to our existing products as well as look at new products that compliment what we do and add value to what our customers are looking for. However, we have by no means penetrated the marketplace with our core value proposition. We are still a relatively small company and I think that there is tremendous opportunity in the existing system of products that we offer today. Our growth is based on a combination of the two and we will not stand still with respect to R& D. We will continue to invest in the range of 18 to 20 percent of our revenue.”

CEOCFOinterviews: Are acquisitions a part of your game plan is the building of your product portfolio or strictly your own R& D efforts?

Mr. Cote: We essentially build everything ourselves but we do outsource a couple of component pieces. I guess I would not rule out an acquisition but it would really depend on our identification of key new functionality. Would we have the core competence to build it, to buy the IP and develop it, or should we acquire a company? I think all of those options are open. At this point I would not predict one way or the other, other than to say that we would be open to an acquisition. I think that given how the company has preformed over the last year and a half, with respect to our cash balances, profitability and revenue growth, we are in a better position to have all of those options.”

CEOCFOinterviews: Can you tell us a little about the current financial position of the company?

Mr. Cote: “In our most recently completed year of 2002, we did 55 million dollars in revenue, which was about an 18 percent increase over 2001. We felt very good having an increase in a very tough year. We believe that in the year 2003 we can grow faster than that and have done about 16.8 million dollars in the first Quarter. Further, we just completed our second Quarter and have done 17.5 million, so we have grown again sequentially in those two quarters. That makes a total of six quarters that we have grown sequentially. Six quarters ago was our fiscal Q1-2002, and we were mildly profitable and we have been profitable on an increasing basis ever since. We did eight cents per share in our most recent quarter and we are beginning to demonstrate strong profitability. On the balance sheet, from a cash standpoint, we actually grew cash this most recent quarter by about 8 million dollars to 76 million dollars. Therefore, we have a decent amount of cash and have been cash flow positive for two years now. We are showing good core financial stability on the balance sheet, growth in revenue, growth in earnings and we essentially have little or no debt. I think those things go a long way to show the stability of the company.”

CEOCFOinterviews: Is patent protection necessary on your products?

Mr. Cote: “Patent protection is definitely necessary, especially for the key areas. The first is what we call classification, which is this ability to identify key applications and the other piece is our particular control technology, TCP Rate Control. Therefore, we do have a patent in those areas that we believe are important to the protection of our specific technology and that continues to be an important focus.”

CEOCFOinterviews: What would it take for a competitor to come up with something close to your product offering?

Mr. Cote: “We have competitors today that have technologies that make up a percentage of what we do. However, for someone to do exactly what we do, it would probable take a long time given the fact that we have invested seven years on the platform that we have developed, which is quite substantial.”

CEOCFOinterviews: In closing, what would you like to say to potential investors?

Mr. Cote: “We represent, in a very tough environment, a company that is demonstrating the success of the products and technology that we offer, by continuing to deliver strong financial results. Four or five years ago the financial stability of a company may have been a little less important but today it is very important to the end customer base. Therefore, I think our strength and stability as a company helps us. Our focus on our customer base in terms of being a long term partner should give investors a sense that we are company that is going to be around, is going to deliver value to the marketplace and will continue to grow as this market and economy begins to recover.”


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