Zoom Technologies, Inc. - Company Profile, Information, Business Description, History, Background Information on Zoom Technologies, Inc.

207 South Street
Boston, Massachusetts 02111

Company Perspectives:

The age of broadband is upon us, and Zoom is ready. We are ready with a line of advanced cable and DSL modems, and with wireless and home phoneline networking products that make it easy for people to use and share their broadband line to the Internet. We are ready with a thorough commitment to high-volume Internet access products so we can meet the needs of our customers, both end-users and channel partners. We are strong in dial-up modems, and we plan to get stronger. And we will use our expertise and channels as a springboard to success in broadband.

History of Zoom Technologies, Inc.

Zoom Technologies, Inc. is a leading designer, manufacturer, and marketer of dial-up modems, cable and digital subscriber line (DSL) modems, wireless local area network (LAN) products, home phoneline networking devices, and a variety of data communication products. Its products--sold under the Zoom, Hayes, and Global Village names--are found in over 3,000 U.S. computer retail locations and in over 5,000 international locations. The company was one of the first manufacturers of faxmodems and voice faxmodems and stood at the forefront of emerging trends in computer connectivity during the late 1990s and into the new century. During 2002, the company changed its corporate name from Zoom Telephonics to Zoom Technologies and moved the jurisdiction of its incorporation from Canada to Delaware. Zoom Technologies conducts its business through its wholly owned subsidiary, Zoom Telephonics.

Early History

During the late 1960s, Frank B. Manning and his roommate, Peter R. Kramer, would stay up late into the night discussing how to start their own business. After graduating with doctorates from the Massachusetts Institute of Technology (MIT) in the mid-1970s, the two young men decided that the timing was finally right. Taking a suggestion from T. Pat Manning, Frank's brother, the ambitious entrepreneurs settled on a product idea that they thought would be marketable and inexpensive to produce. The company was incorporated and began operations in March of 1977 under the name of Zoom which, according to the founders, would symbolize the quick growth of the business.

Manning and Kramer could not have started their business under more auspicious circumstances. The company's first product, dubbed the Silencer, was a switch that could be easily installed on a phone to keep it from ringing. This simple yet revolutionary idea lessened the frustration of callers who continually dialed a number when the phone was off the hook expecting to get through after a few attempts. The introduction of the Silencer fortunately coincided with the breakup of AT&T's monopoly of the telephone equipment industry. Marketed in such magazines as Esquire, Vogue, and Playboy as the perfect solution for an undisturbed "romantic evening at home," the new product was welcomed in newly opened independent phone stores selling non-AT&T equipment.

Although the Silencer generated approximately $200,000 during the company's first few years of operation, Frank Manning and Peter Kramer knew that they would have to expand their product line in order to remain in business. While the two were students at MIT, they had designed an automatic dialer that would continuously dial a busy phone number. Avid tennis players, Manning and Kramer had originated the idea in order to get tennis court reservations at the campus courts, which only took reservations on a first-come, first-served basis beginning at noon. Confident of the dialer's success, Manning devoted himself to its electronic design and programming while Kramer concentrated on the mechanical design and packaging.

During the late 1970s, both Sprint and MCI entered the long distance business, attempting to attract customers by offering discounted long distance service. However, AT&T was the only company that could offer "one-plus" long distance dialing. Sprint and MCI were required to make customers dial an access code and a security code before the actual telephone number, which brought the total number of digits necessary to dial any long distance phone number to a minimum of 23, and sometimes even more. Aware of the potential demand for a product that would make using discount services like Sprint and MCI practical, in 1980 Zoom introduced the Demon Dialer. For use in both the home or office, the Demon Dialer could memorize and dial 176 telephone numbers, of up to 32 digits each. Recognized by the telecommunications industry for its innovative design and market potential, the Demon Dialer won the design award at the 1981 Consumer Electronics Show. More importantly for Zoom, however, the new product helped sales leap from $200,000 to an impressive $6 million annually.

Retrenchment and Reorganization

With the success of the Demon Dialer, Zoom not only began to hire more people and stock large amounts of inventory, but Manning and Kramer decided to go into debt in order to finance Zoom's projected expansion. The budding company hit their first major stumbling block when equal access within the telephone industry ended AT&T's monopoly on one-plus dialing and customers became free to choose their one-plus long distance carrier. It was no longer necessary to dial 23 digits to save money and the Demon Dialer became obsolete overnight. Sales dropped precipitously from $6 million to $1.5 million from 1984 to 1986, and the company lost nearly $1 million during each of those years. Manning and Kramer were forced to get rid of unused inventory, rearrange the financing for their debt payments, and reduce the number of Zoom employees from 56 to 16.

With the insight that separates the successful entrepreneur from the amateur investor, Manning and Kramer had already started to diversify Zoom's product line in 1983. By a stroke of good luck, a field applications engineer who worked for National Semiconductor had developed and designed a 300 baud modem for one of Apple Computer's first products. Aware of Zoom's reputation as a new and innovative company, he approached Manning and Kramer with the proposal that Zoom license, manufacture, and market his original design. Without much income from sales, however, Manning and Kramer convinced the Massachusetts Technology Development Corporation, a quasi-public venture capital company, to underwrite the cost of manufacturing and selling the new product.

In 1983, Zoom introduced the new product based on the licensing agreement. Dubbed the Networker, it was Zoom's first modem product, but, with the personal computer industry on the verge of expansion, the two entrepreneurs thought it expedient to take a chance on the new technology. The Networker was more successful than Manning and Kramer could ever have imagined. As the company's annual sales volume for dialers continued its downward spiral, the modem business started to grow--and grow dramatically. Unable to arrange sufficient retail distribution for its modem, Zoom hit upon the idea of selling their product through direct mail advertising. With their successful modem, Zoom began to garner a higher profile in the telecommunications industry. Soon the company was able to forego its reliance on direct mail and focus on selling modems to distributors, personal computer manufacturers, and high-volume retail stores.

By 1985, Zoom began to design and market its own line of modems. Since the issue of compatibility was uppermost on everyone's mind, especially with IBM introducing its personal computer during the same year, the modems at Zoom were designed to provide a high level of compatibility and related enhancements, including such features as Demon Dialing. Sold at reasonable prices, Zoom's modems quickly captured a large share of the market. In just three years, sales at the company had surpassed the $5 million mark, almost all of which had been generated from the design and sale of new modems. By 1989, sales had topped the $8 million milepost and, in 1990, the company began trading shares on the NASDAQ exchange. During the same year, sales jumped to just over $13 million, and in 1991 sales skyrocketed to approximately $25 million.

International Expansion and the Emergence of the Internet

With the growth of the company through sales of modems, and in control of a significant share of the market, Manning and Kramer decided it was time to expand the company's product line overseas. As the communications network among personal computer users began to grow, the demand for high-technology, state-of-the-art, faxmodem products also rose. People found that they could keep in regular contact with their business associates, even between the most remote locations around the world, as long as they had a reliable source of electricity and a faxmodem. Zoom established distribution channels and sales offices in Belgium, Finland, Germany, Hong Kong, Italy, Korea, Poland, Portugal, Spain, and the United Kingdom. The company's major European distributors included Criterium, Computer 2000 and its Frontline division, and Northamber. Zoom's major European retail customers included Schadt and Vobis. In the Far East, the company's major distributor of its faxmodems was Nippon Polaroid, one of the largest retail stores for software and computer support technology. By 1994, Zoom reported that its international sales accounted for nearly 20 percent of its total revenues.

With the rise in interest in on-line services, personal computer users were increasingly looking for easy and quick connections to the Internet. This development alone created an enormous demand for high-speed modems. High volume production shifted from modems with a top transmission of 2400 bps in 1987 to a maximum transmission speed of 28,800 bps by 1995. The primary advantage in increasing transmission speed was that the less time it took to transmit text files and graphics, the less expensive phone call costs would be. In addition, high speed transmission modems facilitated data intensive applications such as World Wide Web browsing, remote access to corporate computer networks, and video telephony.

Recognizing the ever-increasing demand for modem-related technologies, Manning and Kramer decided to concentrate entirely on developing products to meet the needs of consumers. Zoom developed modems that provided a range of services. These included functions that digitalized incoming voice signals, stored them in memory, and then retrieved and sent these signals through the telephone network to a remote computer or person. The company's advanced modems could facilitate two-way voice conversations between employees working on the same project but in different locations. The advances in computer software during the early and mid-1990s also increased the demand for high speed transmission modems. Microsoft's introduction of its Windows 95 included capabilities such as remote access, faxing, and Internet access that could only be used with a high speed transmission modem such as Zoom's ComStar. ComStar's key features included a top data speed of 28,800 bps, voice mail, full-duplex speakerphone, VoiceView, Caller ID, Plug & Play, Internet Software, and a maximum fax speed of 14,400 bps.

The Mid-1990s

By the end of fiscal 1995, Zoom had sold over 920,000 faxmodems on the North American continent alone. New products and savvy marketing techniques helped to expand the company's market share. One of its most successful new product marketing methods was the Zoom Business Products Line. Created specifically to meet the demands of institutional and corporate users, the company introduced the Zoom/Multiline, a collection of eight non-related high transmission faxmodems packaged in a single case. For use in situations that require multiple modems in a high-density, low-power format, and with remote access capabilities, this line of products was an immediate success.

At the beginning of 1996, Zoom renewed its commitment to developing highly innovative products and product enhancements. New products included ISDN modems, a communication service that permitted current phone lines to transmit data digitally; simultaneous voice and data capabilities that allowed two people using personal computers to engage in a conversation at the same time as data is being transferred; combined faxmodem/LAN PCMCIA cards, which combined both faxmodem and LAN capabilities in one card and allowed one PCMCIA slot in a notebook computer to serve both functions; and multi-line faxmodems, to be used for bulletin boards, UNIX servers, and LANs that employ a variety of modems. Also in 1996, Zoom entered into an agreement with Hewlett-Packard and Rockwell to design and develop a product that would allow a printer to function as a fax receiving device, whether or not the computer is turned on.

In the mid-1990s, Zoom also reached agreements with numerous high volume retailers in the personal computer market to sell its products, including Best Buy, Circuit City, Computer City, Office Depot, OfficeMax, Staples, and Wal-Mart. In January 1996, Zoom had secured the second largest amount of retail space set aside for modems throughout North America. In 1995, nearly 20 percent of the company's total revenue was generated from sales at the high volume retailer Best Buy, which was located in most urban and suburban areas across the United States.

As sales for the company continued to increase, Zoom management became convinced that the time was right for the implementation of an acquisition program. In July 1996, Zoom purchased Tribe Computer Works, a private corporation based in California that manufactured remote access systems and routers for branch office environments such as banks. In 1995, the remote access systems market grew by an astounding 120 percent, and Zoom was well placed to sell remote access products in the high volume retail stores already distributing the company's products.

By now, Zoom had received recognition from such eminent publications as Forbes magazine, Financial World, Fortune, PC World, Windows Magazine, ComputerLife, NetGuide, Windows User, and PC Professionell in Germany. Best Buy awards had come from such distant countries as the United Kingdom and Brazil. With such rave reviews from sources all over the world, Manning and Kramer, still managing the company's development and direction in the mid-1990s, were confident that Zoom's best years lay ahead.

The Broadband Age: Late 1990s and Beyond

Indeed, the latter half of the 1990s proved to be boom years for technology-related and Internet-based companies. By 1998, the new standard for dial-up modems shifted to V.90 and K56flex, which allowed to users to connect to the Internet at 56,000 bps. Zoom spent heavily on developing new products that were compatible with this standard. In October 1998, the firm's Zoom FaxModem 56K Dualmode received an Editor's Choice award from CNET, beating out competitor 3Com Corp. Zoom also continued its acquisition program in 1999 with the purchase of Hayes Corp. The deal added a host of new modems to Zoom's product arsenal and gave the company access to Hayes' DSL and cable modem development facilities.

Zoom entered 2000 focused on its dial-up modems as well as its new broadband products. The popularity of broadband--high speed digital Internet access that was significantly faster than a dial-up modem--grew rapidly during the early years of the new millennium. Considered the wave of the future, broadband became the focal point of many companies' business strategies. In fact, the majority of Zoom's research and development spending during 2000 went towards developing broadband-related products. The company chose, however, to remain a premier dial-up modem provider as well--unlike competitor 3Com who exited the dial-up arena in 2000.

The company introduced new V.92 dial-up modems in 2000. V.92 was a new standard in dial-up access that increased possible upload speed to 48,000 bps. Zoom president and CEO Manning commented on the company's direction in an October 2000 press release, claiming that "industry analysts agree that dial-up modems will be the most popular way of accessing the Internet through 2010 and beyond. Zoom is committed to Internet access, and V.92 is an important part of that commitment. Along with cable modems, DSL modems, and advanced network products that link multiple users to the Internet, dial-up modems will continue to be important to Zoom." According to market research firm Instat/MDR, over 86 million analog modems were sold during 2001. That number was estimated to have increased to 89 million during 2002.

As Zoom kept pace with changing technology during the late 1990s and into the new century, its bottom line felt the crunch of falling modem prices. The firm began posting losses in 1997, and during 2001 sales fell by nearly 27 percent over the previous year as the firm reported a net loss of $18.3 million. The company cut spending and jobs as a result of a slowing economy and falling retail demand for its dial-up modems. Its share price tumbled from $15 in March 2000 to below one dollar in early 2003. As a result, the company's stock was moved from the main NASDAQ trading platform to a market for small-cap stocks. In early 2002, the company changed the jurisdiction of incorporation from Canada to Delaware and adopted a new corporate name, Zoom Technologies, Inc. The company continued to conduct business through its Zoom Telephonics subsidiary.

In January 2003, the firm began shipping its Zoom CableModem 5041 to Best Buy stores, hoping to cash in on increasing demand for broadband modems. Despite the challenges it faced, Zoom remained optimistic about its future. Whether or not Zoom could achieve the level of success it had secured during the early 1990s, however, remained to be seen.

Principal Subsidiaries: Zoom Telephonics Inc.

Principal Competitors: 3Com Corporation; Motorola Inc.


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