GDC looks for new life after years of major ills.
Remember General DataComm? . . . Maybe not. Founded in 1969, GDC was big back in the days of modems, multiplexers and ATM, but then hit hard times and had to sell off three of its four divisions to survive bankruptcy. Now the largely forgotten company is scrabbling back – in part by reassembling its former self.
Remember General DataComm? . . . Maybe not. Founded in 1969, GDC was big back in the days of modems, multiplexers and ATM, but then hit hard times and had to sell off three of its four divisions to survive bankruptcy.
Now the largely forgotten company is scrabbling back – in part by reassembling its former self.
“These guys have a chance of coming back,” says Thomas Nolle, president of CIMI Corp., if the company can capitalize on its relationships with carriers to sell IP access gear.
No one’s saying it’s going to be easy. Earlier this summer, the company reclaimed Ahead Communications Systems , which had been GDC’s ATM division until it was sold in 2001. Back then, GDC’s founder and CEO Chuck Johnson called the deal a way to focus the company’s efforts on “our network access business and make a return to profitability a more achievable priority.”
In the meantime, the company that owned Ahead went bankrupt, defaulting on a $17 million note it issued to GDC as payment for the ATM division. As a result, Ahead emerged from bankruptcy at the end of June a wholly owned subsidiary of GDC.
“The combination of the two companies enhances the equipment portfolios and service offerings for both GDC’s and Ahead’s customer bases,” the company said in a news release announcing the arrangement.
This might sound vague, but that’s because the company doesn’t yet have a clear view of what it will do with Ahead, says George Best, GDC’s vice president of sales and marketing. “We’re looking at how we can start to blend ATM with what people want today. That’s how we’ll study the issue over the next few months,” Best says.
What people want today, he says, is IP network technology such as MPLS .
This is the latest turn for a company that at its peak had $300 million per year in revenue and had thousands of employees. Now revenue is $13.4 million, and the company has about 100 workers.
In GDC’s heyday in the early 1990s, its fast-growing ATM division was one of the cutting-edge companies making carrier-grade ATM devices, but the expense of running that division drained the company’s cash, says Tim Kraskey, who helped run the division from 1993 to 1995. “We’re the ones that took the ATM division from a zero to a $45 million [annual spending] rate in 18 months,” he says. “We were stripping cash out of the company every day, so the company was going to hit a brick wall unless they got an infusion of cash or moved the ATM group outside.”
Kraskey left in 1995 with two other GDC ATM executives to start Sahara Networks, which was bought in 1997 for $212 million by Cascade Communications. Cascade was later bought by Ascend Communications, which was later bought by Lucent. Kraskey then worked as a venture capitalist for five years and is now vice president of marketing and business development for customer-interaction software vendor Spanlink.
He says he warned GDC that it needed to spin the ATM group into a separate company with better funding, but no one listened. “That company, they’re a bunch of idiots. You can quote me on that one,” he says. There’s no love lost between Kraskey and GDC, because it sued him over his leaving to start Sahara, a company that also made ATM gear.
GDC eventually did hit that brick wall, though the telecom recession that hurt many equipment vendors had more to do with it than the spending of the ATM division. The company filed for bankruptcy in 2001.
Best recalls the day Johnson told employees about the Chapter 11 filing. “As we went down the hallway, I put my arm around him and said, ‘Chuck, watch the stress. This has been your baby for 30 years. This is going to be tough.’ I believe it was. It had been his life from 1969 to 2001.” Johnson died of a heart attack the next week.
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The company has re-emerged from Chapter 11, but it is hanging on by its fingernails. According to a filing with the U.S. Securities and Exchange Commission (SEC) in May , GDC owes about $250,000 a month to creditors under a five-year reorganization plan to repay all its debts. Last year the company got an exemption from the agreement because it couldn’t meet all its requirements.
GDC has complied since then, but things are still tight. To stay afloat, the company borrowed $1.05 million from Howard Modlin, its chairman, CEO and president, and it acknowledges that if it can’t sustain revenues, it may be unable to pay him back under the terms of the loan, the SEC filing says. The company is looking to sell or lease land and a building in Naugatuck, Conn., to raise cash. To save money, it has increased factory-shutdown time, laid off workers and cut salaries of those who remain, according to the SEC filing.
Looking at GDC’s performance in 2004, its auditors “expressed uncertainty about the company’s ability to continue as a going concern,” the filing says.
“We still owe money,” Best says. “That’s it. The debt’s down, but it’s still there, and we’re still having to pay.”
The company stock of cutting-edge technology is thin as well, CIMI’s Nolle says, so re-acquiring its ATM division could be a plus. It gives GDC a chance to sell new products to big phone companies – common carriers – that are still GDC’s largest customers. These carriers are crying out for equipment that addresses their transition to IP networks in a way that equipment made for corporations cannot.
“It’s focusing not so much on technology but on the real subtleties of buyer demand,” Nolle says. “It’s easy to say, ‘I want an MPLS product.’ But it’s hard to understand exactly what features an MPLS product needs to support a common-carrier mission. GDC is a common-carrier-friendly equipment vendor.”
That carrier friendliness is a commodity the company can bank on because IP vendors focused on the Internet and enterprise networks don’t understand what carriers need, Nolle says. “The difference between the carrier view of IP and the common view of IP is so dramatic that if you took an Internet weenie and put them in the room, the carrier guys would cover their ears,” Nolle says.
As part of the comeback it is planning, GDC also is looking at something completely different – becoming a systems integrator for small and midsize businesses, auditing networks for regulatory compliance and providing a range of gear from integrated access devices to IP PBXs to modems, Best says. But it won’t be easy and it won’t happen overnight, he adds.
“We’re moving forward,” Best says. “It’s not swift, but it’s steady. It’s solid and that’s what we’re after – to make sure we have a sound foundation for a business that we can grow.”
