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Phoenix Technologies Ltd. (PTEC) |
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CEOCFO Current
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"To print this page go to file and left click on print" Phoenix Technologies - the undisputed
market leader, with its software installed in four out of five PCs worldwide
Mr. Sisto joined the Company as President and Chief
Executive Officer and was appointed to the Board in June 1999. He was elected Chairman of
the Board in January 2000. Mr. Sisto was formerly Chief Operating Officer of RSA Data
Security, Inc. from 1997 to 1999. He served as President, Chairman and CEO of DocuMagix
from 1994 to 1997. From 1989 to 1994 Mr. Sisto served as the President and CEO of
PixelCraft, Inc. Mr. Sisto has also served in executive management roles at MIPS
Technologies, Relational Technologies (INGRES), Intel, Honeywell, and General Electric.
Mr. Sisto serves as a director and Chairman of the Board of InSilicon, Corp. and on the
Boards of Directors of Hi/fn Inc., a semiconductor components company, and Tekgraf, a
graphic arts distribution and service company. Mr. Sisto earned a Bachelor of Science in
Engineering from the Stevens Institute of Technology. For more information about Phoenix Technologies,
visit our website at http://www.phoenix.com/ CEOCFOinterviews: Mr.
Sisto, can you tell us about your industry and how it has changed since you became CEO of
Phoenix Technologies. Mr. Sisto: “The most important thing that has happened in the PC industry since my arrival at Phoenix is that it has transformed from a high-growth technology business to a consumer electronics replacement business. As a consequence, many fundamental changes to the overall structure of the industry have occurred and are continuing to occur. This is creating much stress in the industry, but it’s also creating many opportunities to expand the utilization of these technologies, allowing them to solve many new problems in industries as well as in the home.” CEOCFOinterviews: What is Phoenix doing in that direction? Mr. Sisto: “We’re changing our whole approach to our customers, who can create more value for their constituents. I think the most important development here at Phoenix is the implementation of something we are calling cME (Core Managed Environment). Through cME, we are allowing our customers to create some personalized value to meet particular market segment environments. For example, they can use the Phoenix FirstWare™ that we have put within the PC, as well as within other devices, information appliances, and imbedded systems, to provide specific solutions and more value to their end users.” CEOCFOinterviews: What are you actually selling them? Mr. Sisto: “What Phoenix does is create software products that connect 32 and 64-bit microprocessors to Internet appliances, PCs, servers and industrial control kinds of machines. Our software effectively starts the computer, authenticates the machine to a network, manages and monitors the computer during its operation, secures it through our security products, and allows the machine to have self-diagnostic/self-healing kinds of data captured through our software. Most importantly, we shut down the machine in an orderly fashion. Much of what people know about Phoenix products is what they’ve seen in the PC industry, where we are the undisputed market leader with probably in excess of 80% market share. Four out of five PCs worldwide have our software installed in them.” CEOCFOinterviews: How does your large customer base help with marketing your new products? Mr. Sisto: “I think the importance of our customer base really is from an investment point of view, the basis by which our future strategy has significant merit. Our customers are the ‘who’s who’ of consumer electronics and high-technology products. Our cME product is enabling customers like Sony Corporation (NYSE: SNE) and Panasonic (Matsushita Electronic Corporation of America) not only to expand beyond the PC and deliver PC-like functions, but also to deliver those functions in products that are not PCs, like home servers, digital televisions and next-generation set-top boxes. Our well-established relationships with these companies provide our investors and us with a path to growing shareholder value and earnings for the future.” CEOCFOinterviews: How much of your business is in the computer start-up area and how much is in the newer products? Mr. Sisto: “As we have started to launch these products in the middle of last year, our current core technology is somewhere in the neighborhood of 85% of our business, with the new products comprising about 15%. What we are targeting for this fiscal year, which started October 1, is to drive that business so it will exceed 25%. Then in our fiscal 2004, we will drive it to about 50% of our business. Then 50% of our business will come from the PC channels, and 50% of our business will be derived from these new and exciting information appliances and security based products that we are putting into the marketplace with our partners.” CEOCFOinterviews: Is there much competition in the area of the new products and are any patents or copyrights a factor? Mr. Sisto: “Most of our competition comes from in-house solutions. In-house engineering organizations build the first product for a particular market and then try to build the second product. In trying to build that second product, they see that the real need is to create configurable devices to meet broader needs. We also have the ability to enable machines that now attach to networks and give users additional features and capabilities. We have a 23-year history of creating software in this area, linking microprocessors to users and making machines that are configurable and that attach to networks. We tend to win many next-generation designs because those products must include more features and standards, which is something we can provide. “Regarding our intellectual property, we are probably in the top ten of software companies with patented technology. But unlike many companies that have patented technology, we use our patents to help create standards and drive industry growth. For example, we have changed the notion of power management within portable devices with our power management technology. We also have a combination of a strong IP base and a rich history of developing products that become industry standards. Then we leverage those assets to help our customers develop new products and go to the next level.” CEOCFOinterviews: What are the benefits of your cME product? Mr. Sisto: “There are two benefits of our cME product. First, from a cost perspective, we help our customers lower their time to market. Because of the standards that we employ for cME, it really lowers the cost to support these products in the marketplace after they are deployed. More importantly, we create an opportunity for our customers to create new gross margin opportunities that are reflected in product value and differentiation. If you look at the PC industry today as an example, it has been somewhat socialized in that the two dominant players, Intel Corporation (NASD: INTC) and Microsoft Corporation (NASD: MSFT), have effectively reduced the value of branding on a PC today. So our customers are taking advantage of an area of software that enables them to create new value capabilities within their computer platforms. For example, an enterprise user can perceive more security in the computer platform. Or they may like the self-healing and self-maintenance capabilities that lower the total cost of ownership for the user. cME helps to bring the products to market faster, and it provides our customers with additional value propositions that help them differentiate their products for their own customers.” CEOCFOinterviews: Do you need to reach the end user at all or just the manufacturer? Mr. Sisto: “One of the big changes in Phoenix now is that we spend quite a bit of time with focus groups composed of CIOs or home users of digital electronic products. We spend a great amount of time understanding the requirements and learning from the end users what it is they are looking for. From that perspective, we have changed Phoenix to spend more time with end users than ever before. We take this knowledge and put it into our designs that we bring to our branded OEMs – companies like Sony, Panasonic, and IBM, for example – and we share this with them as part of our overall design products.” CEOCFOinterviews: Do you design products based on customer request? Mr. Sisto:
“Probably half of the things that we do are a result of our customers coming to us
and asking us if there is a way for us to provide them with a capability. This is because
of our rich 23-year history as a software company, as well as the fact that we have been
focused on globalizing our business. About 50% of our employees are based today in Asia,
and we have been there for over 12 years. We are now one of the few independent software
companies registered in China, and we have base operations in Beijing, Shenzhen, and
Shanghai, and a research center in Nanjing, China. Our customers look to us because we are
local, because we are there where they are performing their business functions.
We’re there to provide them ideas and help them bring things to market. CEOCFOinterviews: What is the Trusted Partner Network all about? Mr. Sisto: “Trusted Partner Network is our way of providing our customers and their customers with more access to our technologies at various levels of integration. When you are focused on the likes of a Panasonic or a Sony, for example, volumes are in the millions of units. Being able to provide the same level of capability to an industrial control manufacturer, who may be doing telematics for a car company in Detroit, is a little harder for us to get to and deal with. By creating the Trusted Partner Network, we have now created a second avenue for our products to be put into the marketplace by companies that have particular specialization in vertical industries, where digitalization is becoming appropriate. We are now at a point where almost everything you buy is digital or becoming digital. If it has a microprocessor in it, it is an excellent candidate for our software. The Trusted Partner Network really is a vehicle by which we are going after a broader segment of the marketplace than we were historically able to do before. And we are doing this on a worldwide basis. We have Trusted Partners in Taiwan, Japan, and China, as well as in the U.S. and Europe.” CEOCFOinterviews: What were you presenting at the Consumer Electronics Show, and how was it received? Mr. Sisto: “The Consumer Electronics Show was exciting for us. We were presenting implementations of cME on Transmeta and VIA platforms that were really targeted for the home appliance market. We were showing the ability to create multi-media or media-type machines that attach to existing TV platforms. We have a partnership now with InterActual Technologies, Inc., on the DVD side, and we showed a rich software environment for our companies to build platforms and bring those platforms to market. They will provide digital content to the home using broadcast channels and TV monitors as the output media. The reaction was very positive. We had something in excess of 25 press interviews and booth traffic that was exciting. This was the first time that Phoenix was at the Consumer Electronics Show. This was an excellent ‘come-out’ venue for showing some of the new technology and the power of cME in terms of creating new products.” CEOCFOinterviews: Can you tell us about the cash and credit position of the company? Mr. Sisto: “The financial position of the company is quite good from a balance sheet perspective. We ended September 30 of last fiscal year with a little over $73 million in cash on our balance sheet and a current ratio of about 3.7 to 1, or almost 4 to 1. More than 90 percent of our near-term receivables are less than thirty days. When you look at the company from a value perspective, we are probably three-and-a-half to four dollars in cash or near cash in terms of the strength of the organization. We have been restructuring the company to take advantage of some of the engineering breakthroughs that we have put together. Over the last two-and-a-half years, we have eliminated about $20 million in cost from the operation. We are starting to see the value. In other words, we expect to have the company show some reasonable growth this year as we stated on our earnings poll in October – somewhere in the neighborhood of 15-20% for the year, and positive earning for the total year as we come out on September 30 this year.” CEOCFOinterviews: Are there other areas that you would like to go into? Mr. Sisto: “We are now developing and delivering security products. Security is best when it is built into whatever must be secured. Our software is effectively built into the machines it is deployed on. We have been working with partners like Verisign, Secure Computing, and now SafeNet in the government sector to create a new level of high assurance network authentication for devices. We believe this will be a growth area for the company over the coming years.” CEOCFOinterviews: In closing, what should shareholders and potential investors know about Phoenix? Mr. Sisto: “The
important fact about Phoenix is that we are the undisputed leader in an area of software
that is becoming important for creating value for products in the marketplace. We have
strong market share presence, both here and in Asia. We have the ‘who’s
who’ of customers, from the lowest level of semiconductor integration to the highest
level of consumer electronics, with customers such as Sony, Samsung, and Panasonic. We
have an unparalleled assurance with capabilities similar to six-sigma, and our customers
have come to respect and expect that from the products we put in the marketplace. From an
investment point of view, we now have a strategy and a structure that will enable Phoenix
to grow faster than the industry and to produce earnings for the foreseeable future that
will continue to create shareholder value.” |
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