Modem pioneer Hayes pulls back from analog market

Summary:Hayes Corp., the company that invented the computer modem industry, will apparently put its analog business on the back burner to focus on a digital future.

Hayes Corp., the company that invented the computer modem industry, will apparently put its analog business on the back burner to focus on a digital future.

It would be a historic decision, the end of an era.

For 20 years, Hayes (Nasdaq:HAYZ), of Norcross, Ga., has sold customers analog modems that once ran as slow as 300bps -- as compared to today's cutting-edge 56Kbps speeds. And until troubles earlier this decade, Hayes ruled the modem market like IBM once ruled PCs. If modems weren't "Hayes-compatible," they didn't sell.

But in announcing a quarterly loss of $14.2 million Thursday, Chief Executive Officer Ron Howard said in a statement that the company is refocusing the business around high-bandwidth digital devices including cable modems and asymmetric digital subscriber line (ADSL) technology.

"[The] analog modem portion of our business will continue to be fully supported but will not be managed as a growth business," Howard said.

Hayes will also sell its Norcross analog modem manufacturing operation to a third-party contract manufacturer during the third quarter, although no binding agreements have been executed. The third party will build the modems for Hayes.

Not abandoning analog
Spokeswoman Marcy Palmer said the company will not abandon the analog market.

"We're not by any stretch making analog modems a secondary product line, but we do believe that the future is broadband," which is where the company will place the bulk of its resources, she said.

No forthcoming analog products have been canceled, she added.

"We're endorsing the fact that it appears to be a declining business, but we want to continue to have our market share in that declining business, and we will continue to support it," said Chuck Marantz, chief financial officer.

'The analog modem portion of our business will not be managed as a growth business.'
-- Hayes CEO Ron Howard

Its reliance on analog modems, however, hurt the company in its second quarter.

In results announced Thursday, sales cratered 41 percent from the year-earlier period to $33.0 million. The company had built up inventory in the quarter, expecting big demand for 56K, V.90 modems.

But when that demand didn't materialize, Hayes was stuck with "$9.6 million of unfavorable manufacturing variances [that] have been included in our cost of sales for the quarter," according to the company's statement.

Analysts said analog sales went south for several reasons. For one, customers put off upgrading their equipment because of confusion over conflicting 56K modem standards, and the onrush of newer Net access technologies including ISDN, ADSL and cable modems.

And without a large number of 56K users to bill, some Internet service providers decided to postpone upgrading their own equipment to the faster speeds.

Stock hits bottom
More operating cuts will be forthcoming over the next two quarters, the company said

Near the close of the market Friday, Hayes shares were off 15 percent, to 1 3/4. The shares were trading in the $9 range in February.

Topics: Hardware, Broadband, Networking

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