The 4th Annual Texas Top 100
Posted By Editor@TheTechMag.com
2001-10-03, 13:42:04 CST

By Dave Faries

Cynics may view the top tech companies as mere survivors, left standing by luck or timing as dotcoms collapsed by the hundreds. n Despite a year of bad news and bleak projections in the tech sector, however, some companies maintained significant growth rates. They exploited niche markets, established solid backing, developed strong customer ties, or held traditional business models sacrosanct-even while competitors charged obliviously into the New Economy.

“Success in business is no mystery,” explained James Leverette, senior vice president of The Broadmoor Group, an executive search firm in Dallas. “It rides on hard work, extensive research, exceptional knowledge of an industry or consumer demand, sound leadership, clear and accurate communication, and a reliable business model.”

In other words, successful companies rarely make news for frivolous benefits and brash, young attitudes. Instead, they read success in the bottom line.

Royce Holland, chairman and CEO of Allegiance Telecom, believes that thriving firms find “addressable market opportunities” and take “minimal technology risks.” His thoughts run counter to companies chasing potential or spending enormous funds on technologies with no real-world value. Holland’s partner, CFO Thomas Lord, once told the Wall Street Journal that high-yield bonds, the life-blood of so many startups, are the financial equivalent of heroin.

Before the battle of Midway in 1942, Admiral Chester Nimitz – a Texan – ordered his commanders to base decisions on the principle of “calculated risk.” That message apparently resonates through executive suites almost 60 years later.

To celebrate those companies that have been the most successful in employee growth, overall revenue, and sales growth, Texas Technology magazine, utilizing data from Austin-based Hoover’s Online, a provider of online business information, objectively and accurately recognizes the Top 100 companies.

Some companies ranked in this year’s list ring familiar, like Texas Instruments. Others seek to dominate markets far from media notice. ProsoftTraining.com, for example, provides online courses and certification only to corporate training departments-not very exciting, perhaps, but their service meets a defined need. A few continue to weather the tech sector storm, buffeted and perhaps battered. Dallas-based i2 Technologies exploded on the market and hit eighth place on Fortune’s Fastest Growing Companies list. They also struggled through bouts of layoffs and other problems typical of a shrinking market. Still, their revenue jumped almost 100 percent last year.

The companies in this year’s top 100 are, indeed, survivors. Their survival depends upon thought, activity, and steady progress.

Allegiance Telecom Inc.
Ranked 17th for Employee Growth

Allegiance Telecom (www.allegiancetelcom.com) plans to reach a positive cash flow point sometime next year. But its expectations rest on a firm foundation. In an industry decimated by high-yield bond debt – more than $15 billion in defaulted telecom bonds already this year – Allegiance stands out as a company dedicated to avoiding unnecessary red ink. Debt consumes only 27 percent of its total capital, and 31 of the 36 cities in its network already generate revenue.

The Dallas-based competitive local exchange carrier offers local and long-distance phone service, data, and Internet access to small and mid-sized businesses in 36 select markets, including Dallas, Boston, and Los Angeles. Chairman and CEO Royce Holland credited a conservative business plan for much of their success. Allegiance is fully funded, requiring no additional cash to complete their network. In addition, Holland explained, “Allegiance uses tried and true telecom technology – no laser beams or wireless broadband.”

Another key, he said, is their ability to “attract and retain good people.” Through a period marked by high volume turnover followed by a spurt of layoffs, employee growth at Allegiance topped 80 percent. The company now employs over 3,200 nationwide.

Ashford.com Inc.
Ranked 28th for Sales Growth

Surviving dotcoms often flirt with disaster. Ashford.com’s stockholders recently approved a reverse stock split at one for 10 in order to meet Nasdaq’s continued listing requirements. Last year, the online luxury business-to-consumer firm put up its jewelry inventory as collateral for a revolving credit line, receiving a generous $25 million limit despite quarterly operating losses of $10 million. Thus far in 2001, net income is down by $136 million and the company either chopped or lost almost 6 percent of its employees.

At the same time, however, Ashford cut operating losses by 37 percent, found an increase in repeat customer sales, and drove sales growth up 68 percent to $67 million after a vicious cost reduction program coupled with a continued focus on customer service. “We believe we are on a good trajectory and that the steps we are taking will build a profitable and enduring business,” said CEO David Gow.

Ashford.com, based in Houston, sells luxury goods online, including vintage watches, fine writing instruments, and art.

DataVoN Inc.
Ranked Third for Employee Growth

Richardson-based DataVoN Inc., is a publicly owned wholesale and enterprise provider of packet-switched, enhanced communications services. DataVoN’s mission is to clearly and profitably differentiate its suite of enhanced products and services in the emerging, next generation communications marketplace.

In designing, building, and deploying one of North America’s first “carrier grade” packet-switched networks, DataVoN has formed working alliances with industry-leading technology and service providers such as Cisco Systems, Broadwing, ipVerse, and Dynegy. DataVoN currently offers nationwide VOIP communications, 8XX originating services, virtual private line services, video caching, video store and forwarding, streaming video services and point-to-point video conferencing on demand.

Unique integration of an experienced management team, strategic planning, achieving aggressive goals, and capitalizing on an extraordinary opportunity in its market niche are corporate accomplishments cited by Frost & Sullivan in recognizing DataVoN in its 2001 Market Engineering Award for Business Strategy Development.

“In our opinion, DataVoN has met every challenge and exceeded every expectation in establishing its business. We anticipate continued leveraging of our capabilities and network in developing new products and markets, resulting in continued strong revenue growth and overall business success. This is a performance-driven organization with an exceptional mix of team-oriented professionals and a commitment to excellence,” said Hugh Simpson, DataVoN’s president and CEO. – Steve Holden, COO and a director, DataVoN.

Dell Computer Corp.
Ranked Third for Overall Revenue

Holding the reputation as the number one direct-sale computer vendor for more than 15 years, Austin-based Dell Computer Corp. (www.dell.com) has managed to stay on top of sales despite all that the market has dished out this year. With 2001 sales currently standing at more than $31 million, Dell is satisfied with the 26.2 percent sales growth it’s experienced.

“Our market share gains show that customers benefit from our low-cost, direct model,” said Mike Maher, Dell spokesperson. “Our direct model is what differentiates us and provides a competitive advantage, regardless if we’re selling servers, storage products, personal computers, services, or, now, network switches. Talking daily with customers and having only four days of inventory to manufacture personalized computer systems is a huge advantage when inventory stifles innovation and profitability,” he said.

Focused on delivering a solid performance in this difficult high tech environment, Maher said Dell is best positioned to gain footing in the industry with the introduction of such programs as Windows XP and the Pentium 4 computer component.

And although Dell regrets having to cut employee numbers this year to keep up with the challenging market, the fact that the company has managed to stay on top with its customers gives them hope for continuing success in the future. “We’re winning new customers at an unprecedented rate across our business, with industry-standard servers and storage products remaining the fastest growing parts of our business,” he said. “We earned the number one share position in the U.S. server market in the first and second quarters, and are closing in fast on the top spot globally.” – Courtney McCall

Entrust Inc.
Ranked 15th for Employee Growth

It’s been a year of viruses, worms, and other nasty Internet stories, which is all well and good for Entrust (www.entrust.com) . The Plano company provides Internet security for businesses in 40 countries, and counts among its offerings identification, entitlement, verification, and privacy.

Entrust embarked on a hiring spree over the past two years, thanks to growing demand and the development of an international infrastructure. In fact, while sales jumped 74 percent in one year, hiring zoomed up 103 percent. As a result, net income fell $82 million into the red in 2000. However, with the costs of the global infrastructure project behind them and revenue now topping $30 million per quarter, Entrust expects a quick return to profitability.

With public key infrastructure steadily becoming the accepted trust mechanism for e-commerce transactions, some analysts join Entrust in their expectations.

i2 Technologies Inc.
Ranked 25th for Sales Growth

First business to consumer sales (b2c, in the cute New Economy parlance) emerged as the darling of analysts everywhere. When b2c collapsed, business to business (b2b) stepped up as the next “can’t miss” sector.

Now that segment, too, shows horrendous cracks.

But i2 Technologies (www.i2.com) remains. Revenue still hovers around $241 million per quarter and the production, procurement, and electronic marketplace software firm counts several big name clients.

The Dallas company stirred up a serious wave concern earlier this year by slashing 14 percent of its workforce in the first quarter and another 10 percent in July. Both moves sent worried investors scurrying away – the company’s stock in fact dropped 45 percent following the July layoff announcement. However, i2’s staff reductions were a reasonable response to market realities, according to some analysts. Indeed, the company’s remaining sales force accounts for more than 90 percent of the client base, indicating an undercurrent of strength. And while its competitors collapsed, revenue at i2 only shuddered a bit, dropping a meager $2 million per quarter off of 1999’s pace, according to Hoover’s.

Once a market darling, i2 now stands as one of the few b2b firms expected to survive the current downturn.

Microtune Inc.
Ranked First for Sales Growth

“A wide range of convergence applications are changing the face of broadcast television today and paving the way for the future of digital, broadband, and interactive TV,” said Douglas Bartek, Microtune’s chairman and CEO. He clearly understands that the wave of innovation, promoted so adamantly by New Economy pioneers, awaits some time in the distance.

But Microtune (www.microtune.com) is well positioned to thrive in the future. They create RF tuners enabling broadband voice, data, and video. Their product ends up in car radios, television, cable modems, but also on passenger jets and in Formula 1 garages – a fine mix of mundane and flashy. The Plano company has also lined up some powerful partners, including Motorola, Hughes Network Systems, and ST Microelectronics. International auto giant DaimlerChrysler accounts for almost 20 percent of Microtune’s sales, and the company holds more than a dozen U.S. and foreign patents, with more on the way.

The company realized sales of more than $70 million last year, racking up an astounding one-year sales growth rate of 70,700 percent. Still, net income remains $32 million in the red.

Most of their future, as former baseball broadcaster Nelson Briles once said, lies ahead of them.

ProsoftTraining
Ranked 21st by Sales Growth

Recently, Austin-based ProsoftTraining (www.prosofttraining.com) dropped the deadly “dotcom” from their corporate name.

It’s not a rebirth, mind you, just a minor edit. Everything else remains the same: a wide ranging product base of IT training and certification courseware, an established market largely consisting of corporate training departments, academic institutions, and commercial training centers, and a commitment to frequently update courseware. Last year ProsoftTraining’s sales jumped 125 percent to almost $20 million-and they earned a profit.

“Almost every job today requires some level of IT knowledge,” explained chairman and CEO Jerry Baird, “and most people haven’t learned what they need to learn. Our success is largely due to the need for both IT skills training and certification, because they improve productivity and increase value.”

The company offers more than 1,000 courses in areas such as e-commerce, Java, and Linux. They recently launched 372 new e-learning products through their ComputerPREP division, providing Web-based, computer-based, classroom-based, and self-study programs.

Rackspace, Ltd.
Ranked Fourth for Sales Growth

Founded in 1999, Rackspace (www.rackspace.com) gained immediate attention, pulling in some $27 million in venture funding from the likes of Sequoia Capital and Norwest Venture Partners – not bad for a Web hosting firm targeting the small- and mid-sized business sectors.

Perhaps the venture folks were right, for once. The company reached profitability in February of this year, based on very impressive sales growth figures – a 924 percent gain in one year. Rackspace now counts more than 2,000 customers in 50 countries. They offer servers on Linux, Solaris, BSD, and Windows platforms, although during their first year of operations almost 70 percent of Rackspace’s clients ran off Linux.

Several firms found profit in the small and mid sized category, but few as successfully as Rackspace. In addition to hosting, the company offers related services, including maintenance and software installation.

SBC Communications Inc.
Ranked First for Overall Revenue

The company employs a quarter of a million people, operates in 28 countries, serves more than 87 million phone lines and 21 million wireless subscribers, and brought in more than $5 billion in sales last year.

For all of that, San Antonio’s SBC Communications (www.sbc.com) is the number two local phone company in the United States, behind only Verizon.

SBC combines regional bells – Pacific Bell, Southwestern Bell, Ameritech, Cingular Wireless, and other companies – into a communications powerhouse. Earlier this year they came under fire and paid penalties for providing inferior service compared to rivals. Still, SBC continues to expand, adding 26 million voice grade equivalent lines – otherwise known as phone lines – and extending services into eight new countries. It only offers long-distance phone service in Connecticut, Kansas, Oklahoma, and Texas. Recently, however, the company filed with the FCC to offers service to Arkansas and Missouri, as well. Other products include high-speed Internet access, e-business, security systems, and directory advertising.

Last year, when SBC operated a mere 61 million phone lines in 20 countries, Fortune ranked SBC 15th in the Fortune 500.

Silicon Laboratories Inc.
Ranked 12th for Employee Growth

“World class technology professionals like to work with world class peers,” said Dan Artusi, COO for Silicon Laboratories (www.silabs.com) , the Austin-based mixed-signal chip integrated circuit firm. The five-year-old company continues to attract talent, despite the uncertain market.

“One of the things we’ve done superbly is amass a team of talented people,” Artusi continued. “That’s the attraction.”

But talent matters little without a strong product and a well-defined market. Company income grew 27 percent, even while the industry crumbled. Silicon Labs develops mixed signal chips for cell phones, optical communications, and modems. It targets a traditional market, including grocery scanners. “We do a lot of difficult things in the analog space using standard semiconductor technology,” Artusi said.

“We plan to grow to the end of the year and to grow next year. We’re very cautious, but we have no plans to slow down.”

Texas Instruments Inc.
Ranked Fifth for Overall Revenue

The presence of Texas Instruments (www.ti.com) on any list of this nature should surprise no one. The company that invented the monolithic integrated circuit – otherwise known as the microchip –back in 1958 and dominated the calculator market in the ‘70s, “continues to accelerate the pace of technological development,” according to TI Chairman and CEO Tom Engibous.

The company ranks amongst the Fortune 500, Fortune’s Best Companies to Work For, Hoover’s 500, and the Financial Times Global 500. It’s no stretch, then, to list TI amongst the top firms in Texas.

TI dominates the analog chip and digital signal processor (DSP) markets. Sales last year hit $11.875 billion, and revenue grew each quarter last year – a solid performance from an old company. And, as Engibous said, the company continues to pace the industry. More than half of the wireless phones sold worldwide operate on TI DSPs, and the company last month introduced a new 32.64-bit floating DSP, promising three times the audio performance of current home entertainment systems.

“The technology mantra is still ‘more, better, faster, cheaper,’” said Engibous. He expects that consumers will demand more life-like sound from their home entertainment equipment.

Conclusion

Last month’s unexpected attack on the U.S. will undoubtedly affect many of the Top 100 companies in ways yet unknown. The terrorist hijacking rocked Travelocity as airline travel shut down, then resumed with a nervous sputter. DataVon, on the other hand, provides a service-video conferencing that circumvents the need for business travel. They may indeed realize short-term benefits in the aftermath of the attack. Companies developing surveillance or military products, too, should see short-term gains.

But business plans neither wallow nor revel in events. They simply delineate a company’s response to things occurring within the marketplace.

The firms listed above are difficult to classify. Some are upstarts with bold ideas, others are longstanding firms that continue to innovate. Some approach traditional markets while others reach for the ephemeral markets of the future. Admiral Nimitz’s warning, however, echoes throughout the Top 100 as a common thread-”calculated risk,” conservative business plans supported by creative and aggressive teams.

Increasingly, IT executives design their futures around supporting business with technology rather than forging a new utopian world based upon technology. Or perhaps they always have, chugging along successfully but unnoticed amidst the shrill dotcoms.

They express the new consensus, the ethic of the calculated risk, in many ways. In speaking about his industry, ProsoftTraining’s Baird highlighted the pros and cons of technology in prosaic terms, utterly devoid of ‘90s jargon. “The good news about e-learning is that it is time and cost effective,” he noted. “The bad new about e-learning is that it is not a complete solution. We see a bright future for hybrid solutions that use e-learning in tandem with classroom materials.”

The basis of success, then, becomes recognizing very real market needs and limitations, addressing them, then edging consumers forward. It’s not just about technology, it’s about business and success.

It’s the new New Economy, and these companies get it.

All editorial for this story was written by Dave Faries, unless otherwise noted. Dave is a director with Triton Communications, a public relations firm located in Irving, Texas. He can be reached at dfaries@mhagroup.com.