Chapter 3
Data Communications: Market Competition 1969-1972
Modems and Multiplexers
3.5 ADS Has a Blockbuster 19693.5 ADS Has a Blockbuster 1969
ADS had a head of steam entering 1969 with an innovative
TDM and a contract with IBM. In having built diagnostics into the ADS-660,
ADS had found a way to wedge itself successfully between the computer companies
and the telecommunications giant AT&T. So
while it made for an uncomfortable existence, it was turf neither AT&T
nor IBM claimed and offered fertile ground to grow before the behemoths
awoke.
In fact, sales, and thus the need for working capital,
were growing so rapidly that despite their run-away success ADS was strapped
for cash. Unfortunately in early 1969, selling stock to the public no longer
existed as an option. In specifics lost to time, the Autonetics Division
of North American Rockwell (Rockwell), a major defense and space contractor,
and ADS learned of each other and began exploring whether an opportunity
existed for ADS to exploit Rockwell’s modem technology. Rockwell had developed
an automatically equalizing 4800 bps modem under military contract and
now wanted to sell it commercially. ADS’s management couldn’t believe their
good fortune. Only Milgo had a 4800 bps and it suffered from having to
be manually equalized to the conditions of the telephone line. Not having
to provide or pay for manual equalization would represent a significant
economic and selling advantage.
After hasty negotiations, an agreement was reached.
Rockwell would sell their technology to ADS for $2 million. In return,
Rockwell would invest more than $2 million in ADS and guarantee a line
of credit in return for 25% ownership, leaving management and existing
investors with 75% ownership.
Before year-end 1969, ADS shipped the first commercially
available automatically equalizing 4800 bps modem. It was a disaster economically,
however, costing as much to make as the price for which it could be sold.
Without any good alternatives, management decided to sell the existing
version until a modem built with new semiconductor chips from Rockwell
could replace it. Then the projected cost of the modem would drop from
$2,000, to $600 a unit -- resulting in $1,400 of profit per modem.
Heady from being uniquely positioned as the only company
selling both TDMs and high-speed modems, ADS management broadened their
vision to becoming the dominant supplier of all products needed to connect
computers and remote peripherals, including IBM 2260 compatible controllers,
computer based front-end processors, CRT terminals and terminals to replace
either teletypes or IBM 2741 terminals. Bill Norred, head of engineering
and manufacturing, began ramping up the engineering organization and, before
the end of 1969, had a staff of nearly three hundred. ADS had close to
four hundred employees. Norred remembers:
"The
idea was that we would literally provide everything from the computer interface
all the way out to the terminal, except the telephone lines. In
fact, I'll never forget running this big multi-page ad, based upon the
American Flag, that showed we provide everything but the computers and
the telephone lines."
Propelled by the demand for their TDM’s, ADS revenues
soared to nearly $5.0 million in 1969. ADS became the runaway success of
data communications.
