Interview with: Edward H. Blankenship, CFO - featuring: their IT infrastructure management solutions for enterprise data centers, small/medium businesses, and branch offices.

Avocent Corporation (AVCT-NASDAQ)

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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

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Computer Peripherals

Avocent Corporation

4991 Corporate Drive
Huntsville, AL 35805
Phone: 256-430-4000

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Edward H. Blankenship
Chief Financial Officer

Interview conducted by:
Lynn Fosse, Senior Editor
July 20, 2006

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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“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.” - Edward H. Blankenship does not purchase or make
recommendation on stocks based on the interviews published.