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new product cycle is beginning now with Eclipse, an innovative node-based wireless
transmission platform that achieved revenue growth of more than 70 percent and saw orders
Wireless Communications Equipment
Stratex Networks, Inc.
120 Rose Orchard Way
San Jose, CA 95134
Chairman and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
December 30, 2004
Charles D. Kissner
Chairman & Chief Executive Officer
Mr. Kissner joined the company in July 1995 as President and CEO and was appointed
Chairman in August 1996. He was CEO until May 2000, and resumed that role in October
2001. Prior to joining the company, Mr. Kissner was Vice President/General Manager
of the Microelectronics Division of M/A-COM, Inc., a manufacturer of radio and microwave
communication products, from July 1993 to July 1995. From February 1990 to July
1993, Mr. Kissner served as President, Chief Executive Officer, and a Director of
Aristacom International, Inc., a communications software company. He was Executive
Vice President and General Manager of Fujitsu Network Switching, Inc., from 1984 to 1990,
and continued to serve as an outside Director until October 1993. Mr. Kissner held a
number of key positions at Lucent Technologies from 1971 to 1984. He was responsible
from 1980 to 1984 for the international public switching business.
Mr. Kissner is a Director of SonicWall, a provider of internet security appliances, and
recently served on the Board of the NPR (National Public Radio) Foundation. He is on
the Advisory Board of Santa Clara Universitys Leavey School of Business. Mr. Kissner
has a B.S. from California State Polytechnic University and an MBA from Santa Clara
University. He holds several aviation records.
With headquarters in San Jose, California, Stratex Networks, Inc. is one of the worlds
leading providers of high-speed wireless transmission solutions. Since it was
founded in 1984, Stratex Networks has achieved international recognition for quality,
innovation, and technical superiority in delivering data, voice, and video communication
systems, including comprehensive service and support. Stratex Networks, with its
broad product offering and worldwide sales and support organization, is strategically
positioned to serve its customers needs in wireless high-capacity transmission
In 2004, Stratex began the commercial introduction of Eclipse, a unique, node-based
wireless transmission platform that is the most ambitious initiative in the history of the
company. Field experience is accumulating and continues to validate the companys
claims of increased functionality, higher application integration and reduced capital
costs for network system operators. Eclipse is a more robust product than any
other system Stratex has introduced in the past. In addition, Stratex introduced Quattro,
an ultra-high capacity extension of Eclipse that provides an entrée into the high-speed
Kissner, what was your vision when you joined Stratex and how has that developed?
Mr. Kissner: When I first joined Stratex, about nine
years ago, Stratex was called Digital Microwave Corporation and was in the microwave
point-to-point market. The company was struggling with a number of operational and product
introduction issues. My first priority was to have the company run well
operationally, to build a solid foundation for future growth. That goal was achieved in
the first few years. We then began the second phase of the vision, to expand the footprint
of the company to become a solutions provider of wireless transmission systems, by
broadening the portfolio of products and services. We succeeded and the company grew very
rapidly. At that point I stepped down as CEO and remained Chairman. When I returned
to Stratex Networks as CEO in late 2001 during the telecom downturn, the Board and I had
decided to accelerate the original vision to expand the footprint of the company, but also
to change the cost structure to match the new market requirements. We are well along
executing on that vision now by creating a completely new value proposition for our
customers and a more efficient way of delivering that proposition. We have been
introducing a new platform, which represents a unique modular solution in the wireless
transmission market, enabling our customers to eliminate a number of previously separate
functions and parts that were required to implement microwave radios. We are successfully
moving from being a box supplier of point-to-point microwave radio, to a solution provider
for wireless transmission.
exactly are you selling?
Mr. Kissner: Our equipment connects the disparate
components of networks together seamlessly across a wide geographic area so that the
networks can actually work. Think of it as a network of networks. For example,
if you are on a mobile phone and you are trying to make a call, that connection goes to a
mobile base station. That base station then has to be connected to the rest of the world
somehow so the call will go through. That is where our products come in. Stratex Networks
products enable wireless transmission across a state, such as Montana, or a country, or
even around the world.
We are now moving from selling point-to-point
microwave radios, which provided this capability in the past, to selling and installing
complete wireless transmission systems which include microwave radio functionality, but
which are fundamentally network processors with microwave radio as a feature. In the March
quarter, we introduced a new product family called Eclipse. Eclipse is a complete
solution based on a network processor that combines the functions of a number of
previously separate boxes, including microwave radio.
buys your products and how do you get them to buy more?
Mr. Kissner: Fundamentally, the companies that provide
telecommunications services to end-users such as consumers, businesses, and governments
are our primary customers. Examples of these are France Telecom SA (NYSE: FTE), Sprint
(NYSE: FON), and many, many others. In addition, we have a number of private customers who
build their own networks. Our products enable all of these operators to be more
competitive and to offer more services to their customers. For example, todays
mobile operators are interested in the growth of data services of many types. Our systems
allow them to transfer more data and volume through their network at a lower cost. The
more we do that, the more they can buy from us. In other words, our motivation is to drive
down the total cost of ownership. We primarily are known for doing this through repetitive
you a parts supplier, or do you go to them with the suggestion that they use your product?
Mr. Kissner: Our work with these carriers is largely
direct and through knowledgeable, value-added partners. This is especially important
because this is a system sale and because of our innovation model. We are constantly
introducing new ways of doing things, and the carriers require application information
before deploying new solutions. For more than 20 years, Stratex Networks has been among a
number of qualified wireless solution suppliers to these carriers. Recently, we initiated
a more focused outreach to these customers, since we are pioneering a new approach with
CEOCFOinterviews: How is
the outreach going?
Mr. Kissner: The outreach is going well, and is helped
by the fact that Eclipse has strong economic incentives for an operator. When we started
this new initiative, there was some concern about whether customers would adopt it because
it was so ambitious and so dramatically different. I think the financial results generated
by Eclipse now indicate that it is successful. We started shipping in the March 2004
quarter and have ramped up steadily through the September quarter. Our orders for Eclipse
are essentially up more than 100 percent, quarter-over-quarter, and revenue for Eclipse
was up more than 70 percent, quarter-over-quarter. We are projecting that by the end
of our fiscal year, which ends in March, Eclipse will represent roughly 40 percent or
more, of our total revenue. It is dramatic because the year before it represented zero
percent. We have customers all over the world that are adopting this modular approach and
I think its attraction is very obvious.
there any areas of the world that are more receptive than others?
Mr. Kissner: I think the regions of the world that are
building new networks are the ones that see the value immediately and understand why this
approach is so powerful. Those regions are generally in developing countries that are
building an initial infrastructure or experiencing very high growth rates. Some areas that
come to mind include Africa, certain parts of the Middle East, Russia, and certain parts
you positioned to reach all of these areas?
Mr. Kissner: That has been the tradition of Stratex
Networks. For the last 20 years, our sales opportunities typically have been outside of
the United States. In the most recent year or two, 90 percent of our sales have been
international. We have generally gone where there is high growth. In our September
quarter, Europe, the Middle East and Africa represented a little more than one-third of
our total sales.
you tell us about your competition?
Mr. Kissner: Our competition is represented by
point-to-point microwave radio suppliers. For many years, our competition has typically
been the larger telecommunication equipment service providers around the world. These are
companies like Ericsson (Nasdaq: ERICY), NEC Corp. (Nasdaq: NIPNY), Siemens AG (NYSE: SI),
and Alcatel (NYSE: ALA), and a host of smaller suppliers that tend to be smaller than us.
This competitive landscape is nothing new to us. The way that we operate is to drive
innovation very rapidly in the marketplace to try to take advantage of our size. By taking
advantage, I mean that Stratex Networks is designed to run very efficiently, make
decisions rapidly and provide a string of technological advantages to add to customer
value. That has been our advantage over the last 20 years. Our Eclipse is just the latest
in a series of technological advances, and we believe Eclipse will set a new standard.
is ahead for you?
Mr. Kissner: Eclipse is a platform of products. Now
that we have rolled out the initial version, it takes us a long way to fulfilling our
vision of being a solutions provider. This platform of products has opened the door in a
couple of ways. First, it helps us to realize expansion of our served market. We set a
goal a couple of years ago that by the end of 2006, we would have a platform of products
that would enable us to double our served market. We have now brought new products into
the market place that expanded our served market from $1.7 billion last year to about $3.2
billion in 2006. Those new markets include providing transmission systems for the fixed
wireless access market, including WiMAX in the future, the data applications market, and
the ultra-high capacity trunking market. We feel those new markets have great
potential, and we believe that Stratex Networks will continue to penetrate further our
existing market, called the short-haul market. To support this expected growth and to
expand our capabilities, we have about eighteen months of other product developments and
enhancements in process and in planning mostly software, some hardware driven. This
includes some new capabilities, most of which have not been announced yet.
you tell us about the financial condition of the company?
Mr. Kissner: We spent a tremendous amount in R&D
developing the Eclipse platform. When we began development of Eclipse two-and-a-half years
ago, we knew it was a long-term commitment and would be a significant investment for the
company. We just raised approximately $23 million through a private equity offering that
helped strengthen our cash position and the companys competitive position with
potential customers. We now believe that the company has survived the toughest part of the
investment cycle and that the balance sheet is still strong. We believe that we will
achieve a profitable cash flow in a reasonable amount of time.
acquisitions or joint ventures a factor?
Mr. Kissner: They have been. Last year we acquired a
company formerly known as Plessey Broadband Wireless that had a technology for license
exempt products. The acquisition complemented the companys existing licensed product
portfolio and provided customers with the flexibility and convenience of using one
supplier for both licensed and unlicensed products when planning and implementing
networks. We are always looking for acquisitions and partnerships when the opportunity is
appropriate, but currently we are very focused on the successful rollout of Eclipse.
there a service component to your products?
Mr. Kissner: There are two elements to our service
component. We have maintenance and support service and maintenance contracts for our
extensive deployed base of systems. Incidentally, we have over 270,000 installations in
the field all over the world right now. The other part of our service component is the
engineering and installation of our wireless transmission systems. There are a number of
networks, especially in developing countries, where this capability is important. Today,
the service business represents about 15 percent of our business and is growing.
closing, why is this a good time for investors to look at Stratex and what should they
know that they might not realize when they first look at the company?
Mr. Kissner: Most of our investors understand that the
history of the company shows that when we introduce a new product, when it begins to show
signs of success, it will then start a cycle of improving results. Most people understand
our value proposition but what they want to know is when it will happen this time? Here
are some important points I would like to highlight. First, there is a new product
cycle beginning now and the evidence of our success is based on a quarter-over-quarter
increase in both orders and revenues for Eclipse. Second, our served market opportunities
are clearly expanding now, assuming projections of infrastructure spending are correct.
Third, gross margin expansion, driven by the ramp of Eclipse, is a key element of our
investment story. Company gross margin in our September 2004 quarter reached 19.3 percent,
more than 400 basis points higher than the previous quarter, and we projected a further
trend of expansion when we reported the September quarter. Fourth, we have a large global
customer base of more than one hundred active customers every quarter, which affords us an
established market presence, a history of successful installations and a graceful way to
offer our new value proposition. Finally, while Eclipse is a new, innovative approach in
the marketplace, we now have enough experience to validate its popularity and its
increasing sales success. We are pleased with the pace of the ramp, our roadmap to
introduce new features to expand Eclipses functionality, and with the positive
response from customers, both current and potential.
Safe Harbor Statement
Any statements contained in this document that are not statements of
historical fact may be deemed to be forward-looking statements. Words such as
"believes," "plans," "expects," "will," and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements involve risks and uncertainties such as a lower than expected
demand for the Eclipse, decrease in capital expenditures in the wireless transmission
industry, increased competition and the introduction of new competing products and
technologies. Stratex assumes no obligation
to update this information. For a further discussion of risks and uncertainties that could
cause actual results to differ from those expressed in these forward-looking statements,
as well as risks relating to the Companys business in general, see the risk
disclosures in the Companys SEC filings, including its most recent Annual Report on
Form 10-K for the year ended March 31, 2004 and its Quarterly Reports on Form 10-Q filed
from time to time with the SEC.
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