Chapter 5 - Data Communications: Market Competition 1969-1972
5.5 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.18 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.19
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.
- [18]:
Norred: “The ADS multiplexer used to get so hot, people used to joke about being able to fry eggs on the front panel, and in fact we tried to do without fans for years, but we finally had to give up and put fans in the unit because it would just get so hot that the front panel would almost melt. It literally had all these 28 volt lamps in it, but it was the beginnings of diagnostics.”
- [19]:
Norred recalls: “Most of our links were 4800, and the dominant supplier at that time, of course, was Milgo. Milgo, for all intents and purposes, in the beginnings around ‘69, was the dominant supplier of high-speed modems. They had this manually equalized 4800 bit per second modem.”