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When they get through the
transitional and integration period of their Cyclades and LANDesk acquisitions, Avocent
expects to be able to offer a unique product set for IT administrators that includes the
best KVM switches, serial management appliances and software tools
Technology
Computer Peripherals
(AVCT-NASDAQ)
Avocent Corporation
4991 Corporate Drive
Huntsville, AL 35805
Phone: 256-430-4000
Edward H. Blankenship
Chief Financial Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
July 20, 2006
BIO:
Edward H. Blankenship
Senior Vice President of Finance
Chief Financial Officer
Assistant Secretary
Edward (Teddy) H. Blankenship was named senior vice president of finance, chief financial
officer and assistant secretary in July 2005. He has served as vice president and chief
accounting officer since joining Avocent in 2002.
Prior to joining Avocent, he was a partner with
PricewaterhouseCoopers LLP, where he spent 15 years in assurance and accounting services
in U.S. and international offices. He was most recently a partner in the firm’s
Global Capital Markets Group in London.
Mr. Blankenship led advisory and audit engagements
for public and private multinational clients in various industries, including technology,
financial services, and health care.
Mr. Blankenship is a graduate of Auburn University.
Company Profile:
AvocentŪ is a leading global provider of IT infrastructure management solutions for
enterprise data centers, small/medium businesses, and branch offices.
Branded products include local and remote switching, serial console servers, digital
extension, embedded, wireless, mobile and video display solutions. Avocent hardware and
software combined provides customers with the power of centralized management. IT
administrators can sit at a single console and control local and remote servers, network
data center devices, and mobile, power and environmental appliances.
Avocent solutions are distributed by the world’s
largest server manufacturers and installed in Fortune 100 companies around the world.
CEOCFO: Mr. Blankenship,
will you tell us about your background with the company?
Mr. Blankenship: “I have been the CFO since last July.
Prior to that I was VP of Finance and Chief Accounting Officer since July of 2002, so I
have been with the company for almost four years.”
CEOCFO: What attracted
you and what was your vision when you joined the company?
Mr. Blankenship: “What attracted me was that it was a
growing company, doing interesting things, acquiring companies, developing new
technologies, entering new markets. I liked the people here as well, some of whom I knew
from previous experiences. I felt good about the prospects of the company and where it was
headed and the chance to contribute. The company was experiencing growth and, according to
the vision at the time, expected to continue to experience a lot of growth. I saw the
chance to participate in the managing team, help lead the company through the growth
periods and change as it needed to, from a smaller company to a bigger company. In the
last four years, we have done 5 smaller technology start-up acquisitions plus the two
bigger ones recently, Cyclades which just closed in March and LANDesk which is pending and
which we expect to close in July.”
CEOCFO: Is it a time for
consolidation in the industry or has Avocent always been in the acquisition mode?
Mr. Blankenship: “Avocent has been fairly acquisitive,
looking for technologies that make sense to add to our technologies as our company looks
to continue to grow. We go through a make vs. buy type of analysis and decide if it is
technology that we want to develop or can develop ourselves, or if there is technology out
there that someone else is pretty far down the road with, and has invested a lot in and
developed the technology and if it makes sense for us to acquire that company or
technology. Often it is not just the technology itself, but the people that come with
those companies that attracts us. We are often very interested in the workforce and the
people in the management team. This is because those are the people behind the technology
that have the ideas, developed them and have the vision for how they can be used.”
CEOCFO: What are your
core offerings today?
Mr. Blankenship: “Our core business today is that we
help IT people manage their infrastructure better. There are a couple of main product
lines today, including our keyboard, video and mouse (KVM) switches, which help the
IT people manage their Windows servers remotely. We then have a serial management
appliance, which we already had a version of under Avocent, but we got a better version of
this through the Cyclades Corporation acquisition, which helps people manage Linux servers
and other devices through their serial ports. We have hardware and software solutions that
help people reach out and manage their IT assets, particularly their servers today. We are
moving into other areas as well, to help them manage more assets as their companies grow.
Our customers then do not have to add IT people as quickly.”
CEOCFO: How important is
brand recognition; do, people care if it is an Avocent product?
Mr. Blankenship: “They do. Big enterprises tend to
prefer the Avocent brand, and that is because we invest a lot in our technology and in
associating the Avocent brand with the latest and best technology. We invest a lot in
R&D to stay on the leading edge. About 45% of business today before these two
acquisitions goes through OEMs where we sell our switches to Hewlett-Packard (NYSE: HPQ),
Dell Computer Corporation (NASDAQ: DELL), IBM (NYSE: IBM) and others with their name on
them. There is a significant part of the market that likes to buy from these OEMs, knowing
the OEMs stand behind their products. The OEMs know and trust Avocent and know that we
will stand behind the products and they will be of good quality.”
CEOCFO: Will you tell us
about the manufacturing facilities?
Mr. Blankenship: “We mostly outsource manufacturing. We
use a variety of contract manufacturers in the US, Asia and Europe. We try not to single
source anything; we try to have dual sources from a supplier standpoint for the key
components as well as the contract manufacturers. Our in-house manufacturing is usually
limited to some test and quality type functions.”
CEOCFO: You mentioned
worldwide growth; are there geographic areas where you would like to be more active?
Mr. Blankenship: “Yes, we continue to work to grow our
business in Europe and Asia. We feel like we have done fairly well in Europe but we feel
we still have a lot of room to grow in Asia.”
CEOCFO: How do you
accomplish that goal?
Mr. Blankenship: “We continue to try different things.
We try to have a combination of the right Avocent people and partners on the ground in
countries like China, Japan, South Korea, and India. We look for people with knowledge of
the markets and products, and who have key relationships as well as good partners such as
value-added resellers to help us get leverage in the market.”
CEOCFO: You have a stock
buy-back going on; will you tell us about it?
Mr. Blankenship: “We’ve had a stock buy-back
program going for about a year-and-a-half where we were returning a portion of our excess
cash to shareholders and offsetting potential dilution from stock option exercises.
Recently we just stepped that up to significantly increase the buy-back to effectively
pre-fund a portion of the LANDesk Group acquisition. The initial consideration for the
LANDesk acquisition, which we announced at the end of April and expect to close in July,
was constructed to be half stock and half cash. For the portion that is stock, instead of
just issuing new stock, we are looking at ways to go out in the market and buy stock and
use that to give LANDesk shareholders. This is to effectively convert more of the purchase
price to cash, increase the expected accretion of the deal and reduce the net number of
new shares issued.”
CEOCFO: Your LANDesk
Group acquisition “is going to reinvent IP management.” What will be
different?
Mr. Blankenship: “We have a vision to create a new
product set that is not there today. Today, Avocent provides good Out-of-Band management
for the IT infrastructure. Our KVM switches and serial appliances allow the IT people to
connect to their critical devices, like servers, if that server is down or the operating
system isn’t working or if there is something wrong with the network. They have a
direct connection to that device where they can reach out, take control of it, and work
with it as if they are standing right there physically plugged into it. They can reboot
the server, see what is going on and maybe load patches or upgrades or do whatever is
needed. LANDesk has good in-band tools, which are typically software agent-based tools
that allow IT people to work with their target servers and other devices as long as the
operating system is working and the network is working fine. They can do a lot more with
those software tools than they can with our appliances today, but they are limited by the
requirement that the operating system be working. We see a neat opportunity to bring the
two together and give IT people one solution that provides the best Out-of-Band tools and
in-band software tools that can manage servers, whether they be Linux or Windows,
desktops, mobile devices, printers, routers, hubs and practically any type of device that
the IT people would be responsible for. Today, they are having to use a lot of different
point solutions to piece together various aspects of what we want to do in one place from
one console to make the IT person’s job easier. Our customers tell us that they like
our products – they just want to be able to do more with them.”
CEOCFO: Are companies
spending on IT today? How do you see the marketplace?
Mr. Blankenship: “There has been steady growth in IT
spending as companies continue to grow and try to become more efficient.”
CEOCFO: What is ahead
for Avocent?
Mr. Blankenship: “This next 12 months we will be dealing
with integration efforts from the two acquisitions. The Cyclades acquisition is more
integration intensive from a “blocking and tackling” operations-type integration
-- integrating the sales force, engineering team, reseller channels, and back office
functions like accounting and human resources. LANDesk will also be busy with integrating,
but it is more on the longer-term product development efforts and coming up with this new
solution set. That will involve selecting key engineering, product development and
marketing resources from Avocent, Cyclades and LANDesk to develop these new solution sets
together. Over the next 12 months at least, it will be about doing the basic integration
activities and making sure that we are getting the value out of those deals that we
thought that we would get.”
CEOCFO: Is reaching
investors a focus for the company?
Mr. Blankenship: “Yes it is. I’ve spent a good deal
of my time, as has John Cooper, our CEO, in the last few weeks, going out to visit with
people to talk about these two acquisitions and the strategy behind them. In addition, we
talk about how we believe the timing is appropriate, explaining the mechanics of the
deals, how they fit with the company and where we see the company going over the next few
years.”
CEOCFO: What do people
tend to miss about the company that should be a focus?
Mr. Blankenship: “Previously Avocent has been in a niche
type space as the only public company in the US in the KVM market space. Sometimes people
do not understand what we do. We have worked hard to communicate what the company does,
and as we are going through this transition with the two acquisitions, the challenge is to
continue to communicate better with investors and other stakeholders about where the
company is going, what we are doing and the mission we see the company taking on over the
next few years.”
CEOCFO: In closing, why
should investors be interested now?
Mr. Blankenship: “We think that once we get through the
transitional period, that we will have a unique product set. We already had from the
legacy Avocent, the best in the KVM switches, and from the Cyclades acquisition, the best
in the serial management appliances, and we think LANDesk is certainly one of the best
software providers. We believe that by putting these three companies together and
integrating our technologies, we can come up with a neat, useful solution for IT
administrators that would fuel a lot of growth for the company over the next several
years.”
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