Chapter 12 - Networking: Market Order: LANs 1983-1986
12.23 Micom - Interlan
Micom management became convinced that Interlan represented their opportunity to jump-start their entry into the LAN business. Bill Norred, President, recalls:
The convincing factor that caused me to decide that we should do Interlan was the fact that we felt that the window of opportunity may be very narrow - whether we could develop our own products in sufficient time to be a factor in the marketplace.
On March 1, 1985, Micom acquired Interlan for 1.7 million shares of stock, valued at $65 million the day of the transaction, and merged Interlan into a newly formed subsidiary named MICOM-Interlan, Inc. Micom management began integrating Interlan’s operations into those its own. Paul Severino, formerly President of Interlan, became Corporate Vice President, Product Planning and Technology, Micom, and Chairman of the Board MICOM-Interlan, Inc. He remembers:
We did the deal. I can tell you that every investor at Interlan made a lot of money. Most of the founders did pretty well, at that price, and the problems came literally the day after the merger when, you know, just everything changed. The Interlan distributors and reps were cut loose. Roger wanted an operating guy in who basically was going to glue the PBX and LAN business, and it turns out he was the wrong guy. He turned a lot of people off. Most of the officers of Interlan got turned off one by one and left. Interlan business just flattened out because we had no salesmen. Nobody was selling the products. And product development almost came to a screeching halt for a while, because this new guy came in and decided to reorganize and do everything differently.
Roger Evans remembers:
At the time we acquired Interlan we were adding more direct people to take care of the data PBX customers that insisted on dealing direct, but because we still had the rep arrangement in place, we were still paying the commissions, so the selling expense was starting to get out of hand. We made the commitment that, as part of the Interlan acquisition, we would transition to a direct sales organization, and we would restructure our relationship with our reps and essentially phase them out.
Micom’s Annual Report for Fiscal Year March 1985 reported the mix of Interlan’s LAN sales and their own local area networking, mostly data PBX, sales as:
Exhibit 12.23.1 Micom Networking Sales 1983-1985 (In millions)
The Report also indicated that although Interlan had Net Income of $1.2 million for the twelve months ending March 1985, for the three months of January-March 1985, they lost $1.8 million. Interlan dearly needed the cash infusion of Micom.
In September 1985, Severino frustrated in his new role of planning role combined with his minimal influence in the affairs of MICOM-Interlan resigned.25 He remembers:
I knew that Micom had to make some leaps in order to really compete again, and I wanted to take off a group and just go build the next generation of product, and Roger and I just couldn’t come to an agreement that that was the right thing to do.
In February 1986, MICOM-Interlan finally announced the TCP/IP products that had been too expensive too develop.
For the twelve months ending March 1986, data PBX sales dropped 25%.26 Total LAN sales would equal $58.4 million, 30.8% of sales. Firm sales dropped 2% from 1985 and Net Income dropped 58%. The changes being wrought by the personal computer were having their toil. Norred recalls:
One of the issues that we did not do an adequate job of dealing with is recognizing that the microcomputer was a revolution, not an evolution, and we didn’t deal with it in a revolutionary kind of way. There are very few things in the history of data communications that don’t evolve relatively slowly, but the impact that the PC had on the computing/data communications industry as a whole I think far exceeded anybody’s expectations.
On September 9, 1986, Norred turned over the reigns of Micom to Evans who became President and Chief Executive Officer. Norred’s role became limited to Chairman of the Board.
MICOM-Interlan sales grew only slightly in 1986.