Stratex Networks, Inc. (STXN)
Interview with:
Charles Kissner, Chairman and CEO
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high-speed wireless transmission solutions.


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Stratex Networks’ 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 double quarter-over-quarter

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Wireless Communications Equipment

Stratex Networks, Inc.

120 Rose Orchard Way
San Jose, CA 95134
Phone: 408-943-0777

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Charles Kissner
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 University’s 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.

Company Profile:
With headquarters in San Jose, California, Stratex Networks, Inc. is one of the world’s 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 technology.

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 company’s 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 trunking market.

CEOCFOinterviews: Mr. 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.”

CEOCFOinterviews: What 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.”

CEOCFOinterviews: Who 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, today’s 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 innovation.”

CEOCFOinterviews: Are 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 Eclipse.”

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.”

CEOCFOinterviews: Are 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 of Asia.”

CEOCFOinterviews: Are 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.”

CEOCFOinterviews: Will 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.”

CEOCFOinterviews: What 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.”

CEOCFOinterviews: Will 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 company’s 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.”

CEOCFOinterviews: Are 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 company’s 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.”

CEOCFOinterviews: Is 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.”

CEOCFOinterviews: In 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 Eclipse’s 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 Company’s business in general, see the risk disclosures in the Company’s 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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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. - Charles Kissner


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