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Socket
Communications, Inc. (NASD: SCKT) |
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CEOCFO CEOCFO Monthly Analyst |
"To print this page go to file and left click on print" Socket Communications is in a strong position as a leading provider of connectivity solutions for the growing hand-held computers market
Technology Communication Equipment (NASD: SCKT) Socket Communications, Inc. 37400 Central Court Newark, CA 94560 Phone: 510-724-2700  Kevin J. Mills President and Chief Executive Officer Interview conducted by: Lynn Fosse Editor CEOCFOinterviews.com December 2002 Bio of CEO, CEOCFOinterviews:
Mr. Mills, given the economic environment over the past two years, how has Socket fared
and what have been your accomplishments? Mr. Mills: “Socket has been focused on the hand-held market,
and in fairness to the hand-held market, I would say that it has been more robust than the
economy in general. We have been providing add-on peripherals to Pocket PCs and other
hand-held computers. I think because of the profitability improvements that people get
with these computers, they really have held up better. We have done reasonable well; we
have grown by about 40% this year, over last year, and we are doing that even though we
are reducing our expenses by about 10% during the same time. I think we are reasonably
pleased with our performance; we would like to see the economy stronger but I think we are
doing well in these difficult times.” CEOCFOinterviews: What are you doing to reduce expenses and how are
you able to grow while doing that? Mr. Mills: “We use a very leveraged sales channel, selling our
products basically through distributors such as Ingram Micro Inc. (NYSE: IM) and Tech Data
Corporation (NASD/NMS: TECD), which sell through the “Amazons” of the world. We
don’t have the traditional cost associated with increased sales, because we use a
channel. I think that in general our developments have slowed down a bit and that has
helped reduce our cost. We have taken such actions as travel reduction; we reduced our
force by about four people, so we basically have ‘tightened our belts’ to keep
costs down and at the same time used our leverage sales channel to increase sales.” CEOCFOinterviews: Which of your products are doing the best and is
the performance the same worldwide? Mr. Mills: “During the last eighteen months, we have certainly
have produced a lot of new products and there are a couple of areas that are doing quite
well. Our Bluetooth products are doing quite well in Europe, where people have Bluetooth
enabled phones and affordable air service is generally available. People are using our
Bluetooth cards to Bluetooth enable PDAs and then to dial up and connect to get their
e-mail or search the web on a Pocket PC. Over the last twelve months, that has become our
number one selling product in Europe. CEOCFOinterviews: Do you see those three being the lead products
going forward as well? Mr. Mills: “Yes, I think those are all strong areas; we have
other areas as well but Bluetooth continues to be a particularly strong area; its benefits
are not fully understood in the United States, because mobile phone technology is not as
sophisticated as it is in Europe. This will change over the coming year with AT&T (T)
putting out Bluetooth enabled phones. Therefore, we expect Bluetooth to be very strong
going forward and the wireless LAN area, provided the correct levels of security can be
factored in. We also announced this morning that we would be the first with this new
security 802.11-byte networking standard. In addition, with hotspots available and
wireless access; we really feel the whole wireless area will be very strong going
forward.” CEOCFOinterviews: Please tell us more about the new security
standards? Mr.
Mills: “Within the 802.11, most corporations are concerned, and rightly so, about
security; on top of the basic transport you can add various security protocols. They vary
in name from EAP (Extensible Authentication Protocol) and LEAP (Lightweight Extensible
Authentication Protocol); and in various ways to make sure, the user on your network is
who he says he is and that he is getting access to information that you have designated as
appropriate for that person. It is a complex area, and we have been working with Microsoft
Corporation (NASD: MSFT) and others, to make sure that our cards support the security
protocols. We are beginning to roll these out and I think they are important so that
people can feel secure about their networks. In most homes, there are hotspots, and you
don’t have a lot of security, but then you don’t have many security issues
either. The open networks have really accelerated 802.11 acceptance, but I think for
corporate deployment, the security levels need also to be there.” CEOCFOinterviews: How long have you been working on Bluetooth and
what is your relationship with other companies in this area? Mr. Mills: “We have been working on Bluetooth since 1998, and
unlike a lot of other companies, we actually have our own software stack, our own user
interface and our own hardware design. Back in 1999, we stared working with Nokia
Corporation (NYSE: NOK) and then in March of 2002, we purchased technology and
Nokia’s Bluetooth card business from them. We continue to work closely with Nokia. We
have members of our staff who are on the advisory counciat the Bluetooth SIG. We believe
strongly in Bluetooth as a technology because it provides a great compromise between
power, speed and distance. In a battery-operated world where you are using hand-held
computers; power is a huge consideration, and so is the ability to have access for an
entire workday. CEOCFOinterviews: Whose job is it to educate the end users about
Bluetooth? Mr. Mills: “As a relatively small company, we don’t have
the budget to do a national campaign, so we have contracts with some of the carriers and
we are hoping that they will educate the end user on the power of Bluetooth. Likewise,
Nokia and Ericsson have spent a great deal of money educating end users. It’s not
just a single person’s responsibility; the carrier, the handset maker along with
Socket need to be involved to make this easy for the end user. I think that we still have
a ways to go there. I think that in the industrial space, and companies like Intermec and
Symbol, who work closely with the ‘Pepsis”
and ‘Fedex’s’ of the world, have a much easier time because they can show
solutions and immediate payback. I think we have a ways to go in the whole education
process.” CEOCFOinterviews: What are your strategies for acquisitions and
joint ventures? Mr. Mills: “We have a set of core technologies, which we
understand and do extremely well; occasionally we need to augment by purchasing other
technologies or teaming up with companies, and we have done that. In October of 2000, we
took up with a company called Thermal Engineering, who brought additional engineering
resources into the company. After two years of working with Nokia, where Nokia was really
doing the base band Bluetooth and we were doing the software and the user interface, it
became obvious that we could service this market some what better because Bluetooth is a
technology that works equally as well with an Ericsson phone, a Nokia phone and a Motorola
phone. It is very difficult for a company such as Nokia to sell a product hat works in a
HP and connects to an Ericsson phone. We entered into discussions and it was agreed that
we could service this market better, therefore we acquired the appropriate technology and
we worked closely with them. CEOCFOinterviews: Is the hand-held market today primarily
individuals or are you dealing with businesses as well? Mr. Mills: “I would say that the hand-held market today is
primarily dealing with individuals. The market has been targeted more towards the
executive types, and the market is about to change. The two dynamics that are happening in
the market are corporate evaluations and deployment. We have seen a number of these
evaluations come to a successful conclusion and we will see deployments in 2003. The other
thing that is happening is that Dell Computer Corporation (DELL) has entered the market
and really changed the price points for Pocket PCs. Prior to Dell’s entry, the
average price of a pocket PC, was probably around four hundred dollars, which is too
expensive for the vast majority of people. Dell’s entry between $199.00 and $299.00 moves that average down closer
to $225.00 dollars, which allows them to address a significantly larger audience and
therefore the speed at which pocket PCs are deployed in 2004-2004, will be substantially
faster.” CEOCFOinterviews: Please tell us about your bar code product and
its use in the medical industry. Mr. Mills: “Within the medical industry we provide a number of
products. One of them is a laser scanner.
What we find is that medical sales reps, for example, may have to give samples of various
pharmaceuticals to doctors and as part of record keeping they need to track lot numbers as
well as part numbers. Having the ability to bar code scan the lot and part numbers as the
doctor decides to try samples really enhances their business. We provide laser scanners
that plug into their existing PDA and allow them to quickly scan. Mr. Mills: “As a company we are just coming off of ‘break-even.’ On our last report, we had about 1.4 million dollars of our own cash in the bank. We have little debt; the only debt on the books is the deal we did with Nokia and we do have payment terms that extend out over all of 2003. Our cash position is OK, it is not wonderful by any stretch, but sufficient to run the business.” CEOCFOinterviews: You have mentioned Europe, is Asia or any other
geographic area a factor for you? Mr. Mills: “Yes, we have an office in Japan and we do sell
products into the Japanese and Asian markets. We have distributors in Honk Kong, Singe
Pore and Australia as well as distributors in Japan. In terms of geographical breakdown,
we have about 40% of our business outside of the US, and of the overall business, probably
28% is in Europe and 12% outside Europe primarily in the Pacific Rim or Asian area.” CEOCFOinterviews: Why are people using Socket products as opposed
to your competition? Mr. Mills: “I think the main reason is because we have taken
an approach that is hand-held centric. Many of our competitors are technology focused,
they are a Bluetooth or wireless LAN Company. What we have done is taken an approach that
‘I want a hand-held and I want to make the usage scenario for the user more
productive’ and therefore we have the low-powered consumption products so the battery
lasts longer. We have gone to great lengths to make sure our software is easily used and
installed. And finally, we work hard to make sure that the devices we make are very small.
Having been in the hand-held market for close to seven years now, we understand that when
you buy a hand-held, you buy it with that particular shape, weight and design in mind to
meet your needs. If you had a peripheral that fundamentally changes that, such as sticking
out a long way or bulking up the device, it is not very appealing to the end user. CEOCFOinterviews: Are people aware of the Socket name? Mr. Mills: “I believe that in the Pocket PC market today,
people are very aware of the Socket name and that it does make a difference because of our
reputation of building excellent products. I think that outside of the Pocket PC arena,
our name recognition is very small if it exists at all. Obviously as the market expands
and particularly with the lower priced Pocket PCs, we feel that the market will have
greater reach and we will expect our name to continue to be associated in a positive way
in this market. That is something that we are working hard on and it’s beginning to
happen. There were two articles last week, one in the New York Times and one in the San
Jose Mercury News, both reviewed either wireless LAN technology or the Dell units, and
both mentioned Socket as being a provider in this space. Through PR and other things, we
do expect our name to be mentioned in a positive way with these types of devices.” CEOCFOinterviews: Is customer service a big feature for you? Mr. Mills: “Yes, we go to great lengths to make sure people
get the solutions working, and we try to get the software to where the average person as
opposed to the software engineer, can get it working. We have online technical support,
and if you register your product, you can submit questions and we will give you answers.
We have people to answer the phones and help you through if you are having difficulty. We
do get high marks for technical support and we are proud of that.” CEOCFOinterviews: Do you maintain much inventory? Mr. Mills: “There is a lot of work, and I think that we do a
good job in this area. Of our inventory, we do keep strategic stocks, to help us balance.
We don’t actually carry any finished goods; we pack out our orders once we have
received them and we can do this quickly. This gives us maximum flexibility. Inventory is
always a concern and I think that without the reading that we have of the market, it would
be very difficult to manage your inventory because it is such a dynamic and changing
market.” CEOCFOinterviews: Are any of Socket’s products or patented? Mr. Mills: “We do have some patents and we do have a lot of
‘know-how’ that we encapsulate. On the ASICs (Applications-Specific Integrated
Circuits) side, we do our own low level interface ASICs and therefore we are able to
capture our ‘knowledge’ in those ASICs, which provides a lot of protection as
well as cost benefits. We have filed a series of patents and we were awarded one last year
for a combination product that has a removable memory in a removable device. We continue
to add to our patent portfolios; I think we have other patents filed but not granted, and
we will continue to enhance our value through patents and ‘know-how’
encapsulation.” CEOCFOinterviews: In closing, what should shareholders and future
investors know about Socket? Mr. Mills: “I think that the most important thing our investors need to believe is that hand-held computers will continue to grow. We are in a strong position; we are a market leader and we have a very strong family of products. We believe strongly that if the hand-held market continues to grow, that we will continue to grow with it. This year we probably grew 40% but the market for Pocket PCs probably only grew 10%-15%. Not only are we in a market that is growing but we are also gaining market shares within that market.We believe Pocket PCs will be as popular as Mobile Phones in years to come and that most people will have an Organizer/Pocket PC of some type. Not everyone will have a Pocket PC but an increasing population will. I think that Socket is the company and will be the brand name in this space and if they believe in that space and sector, then we are a very good investment. For any information on our products or the managing team, they can go to our website at www.socketcom.com.” disclaimers © CEOCFOinterviews.com – Any reproduction or further distribution of this article without the express written consent of CEOCFOinterviews.com is prohibited.
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