U.S. Robotics Corporation Business Information, Profile, and History

Company Perspectives:

Leveraging its analog modem line's key strengths--brand equity and channel penetration--U.S. Robotics will continue to bring new products to its worldwide customer base quickly and competitively. Consumers can expect simplicity in setup and use, reliability and convenience, as well as the dependable service and support that U.S. Robotics' customers have enjoyed for decades.

History of U.S. Robotics Corporation

U.S. Robotics Corporation supplies modems and wired and wireless networking devices designed for use in homes, home offices, and businesses throughout North America and Europe. The company was at the forefront of modem technology in the 1980s and 1990s and was among the leading suppliers of modems using the V.32, V.34, and eventually the V.90 56K standard. 3Com Corporation acquired U.S. Robotics in 1997. As part of a major restructuring, 3Com formed a joint venture with NatSteel Electronics Ltd. and Accton Technology Corporation in 2000. The venture, which included 3Com's analog modem business, adopted the U.S. Robotics name. The company began selling broadband modems--those used for digital subscriber line (DSL) and cable connections--in 2002. U.S. Robotics' management acquired a majority interest in the firm in 2004.

Early History: 1970s

U.S. Robotics was started principally by Casey Cowell, a native of Detroit who completed his degree in economics at the University of Chicago in 1975. He then pursued a doctorate in economics at the University of Rochester, where a friend informed him that after he graduated that he would be the only person in the unemployment line who knew exactly why he was there.

Cowell, at age 23, dropped out of the doctoral program, moved back to Chicago, and reestablished contact with former classmates Paul Collard and Steve Muka, who had an interest in computers. Eventually, the group grew to five men who pooled $200 and laid out plans to build a keyboard and acoustic coupler for communication over phone lines.

At the time, computers consisted of huge mainframes, and four-function calculators were expensive novelties. FCC regulations would not permit direct connection of any device not built by AT&T into the telephone network. While modems could translate digital signals into tones, these tones could be fed mechanically only into an AT&T handset.

In need of a name for the enterprise, one of Cowell's partners suggested a moniker from Isaac Asimov's 1950 science fiction novel I, Robot, which featured a company called U.S. Robot and Mechanical Men, Inc. Dropping the reference to mechanical men, the group settled simply on U.S. Robotics. Initially, the name was problematic, proving unfamiliar and therefore difficult for many people to spell. Furthermore, the name suggested that the company made robots.

Nevertheless, Cowell liked the name because it connoted advanced technology at a time when he and his partners were unsure what product the company would eventually produce. As it turned out, they perfected an acoustic coupler before the keyboard and, in need of cash, decided to begin marketing the device immediately.

Cowell later told the Chicago paper the Reader that, to his surprise, the city was replete with small factories that supplied plastic compounds, vacuum molding materials, electronic parts, and people willing to share their expertise with him. The first couplers were cast in mahogany molds, and the assembly line was located in Cowell's tiny Hyde Park apartment.

U.S. Robotics garnered sales initially through word of mouth. In time, customers started inquiring which terminal systems were recommended for use with the coupler. It soon occurred to Cowell that the company could generate additional revenue by distributing terminal connections made by other companies.

A range of equipment made by DEC, Teletype, General Electric, Applied Digital Data Televideo, and Perkin-Elmer was added to the U.S. Robotics' product line. By the end of the first year, the company cleared $50,000 in sales, about half of which resulted from its distribution business.

Entering the Modem Market in 1979

The company launched its second product, a modem, in 1979 after FCC regulations were changed to allow non-AT&T equipment to be connected directly with the telephone network. The modem was operated by homemade circuit boards, created by silk screening paint over a copper-plated board, then immersing the board in an acid bath where all but the painted surfaces were dissolved. Cowell took out a classified ad in Byte magazine, and soon orders for the modems began rolling in. With its increased cash flow, Cowell rented manufacturing space west of Chicago's Loop.

In the early 1980s, Cowell approached the investment community for the first time in search of capital, most importantly for a new manufacturing facility. In addition to being small, the west Loop facility had no shipping door, forcing workers to hand boxes through doorways and pack palettes on a makeshift loading dock. The search for funding was successful, and in 1984 U.S. Robotics relocated to a large factory space, formerly a pharmaceutical building, in Skokie, a suburb north of Chicago. The modem became U.S. Robotics' only product. Through research and development, modems were by now eight times faster than they had been only a few years earlier. Rather than sending a page of text every minute, the devices could shuttle through nearly ten.

The company encountered a market dominated by three major competitors, Hayes Microcomputer Products and Motorola's Codex and UDS divisions. Nevertheless, U.S. Robotics held several advantages over these competitors. Most importantly, the company manufactured its own "data pump," the computer chip that controlled the modem's transmission features. As a result, U.S. Robotics' modems were built to its own specifications, not those of Rockwell and other chip manufacturers that supplied Hayes and Motorola. This allowed U.S. Robotics to develop faster modems and get them to market more quickly than its competitors.

While modems operating at a rate of 1,200 baud (signal variations per second) were once considered fast, by 1990 rates of 9,600 bits per second were becoming common. These systems multiplied the number of variations by using different forms of modulation on the signal. In 1990, the standard was known as V.32, or "V-dot 32." During this time, U.S. Robotics began development of a much faster modem system that could deliver 14.4 kilobits per second. Nevertheless, when the international standard, called "V.32bis," was adopted, U.S. Robotics also had a product meeting these specifications ready for manufacture.

The modem made it possible to send and receive information much more quickly, which was both a convenience for the computer user and, more importantly, a cost savings, involving less time that a user needed to keep expensive long distance telephone lines engaged. For many, the new modem represented a tremendous savings in operating expenses. While maintaining third place in the general modem market, with an 8.3 percent share, U.S. Robotics dominated the high-speed sector of the market, capturing a 43 percent share.

Expansion in the Early 1990s

The risky but successful coup in the high end of the market did much to further the legitimacy of the U.S. Robotics name. Companies previously unfamiliar with U.S. Robotics became customers and, in doing so, identified themselves for future marketing efforts.

U.S. Robotics also expanded into foreign markets; its first acquisition was Miracom Technology, Ltd. (later called U.S. Robotics Ltd. UK), with which the company established EEC sales and manufacturing capabilities in 1989. In 1991, U.S. Robotics' sales and marketing concern, U.S. Robotics, s.a., was established in Europe. Two years later, the company acquired P.N.B., s.a., a designer and manufacturer of data communications products for IBM-compatible personal computers and workstations. This overseas presence not only gave U.S. Robotics access to international market intelligence and standards but enabled the company to maintain the same level of local market support worldwide that it had in North America.

In 1993, U.S. Robotics changed the face of the personal communications market through aggressive pricing moves and an expanded retail presence with its Sportster line of modems. Capitalizing on the low-cost digital signal processor (DSP)-based architecture--developed for the company's line of Courier organizational modems--the company established its brand image as a technical leader, and its well-known quality allowed U.S. Robotics to become the dominant modem supplier to the personal communications market.

U.S. Robotics also served its worldwide corporate customers with three product lines at this time: Courier organizational desktop modems; Shard Access local area network (LAN) communications servers; and Total Control, analog and digital WAN Hubs.

Courier was the first modem on the market to include industry-standard V.32bis 14,000 bps data transmission. U.S. Robotics motherboard/daughterboard architecture enhanced the Courier's functionally and allowed the company to offer the first modem with a field upgrade to the upcoming V.34 28, 800 bps architecture.

U.S. Robotics' two WAN hubs served distinct markets. The Enterprise Network Hub served the corporate market, which required high-speed, error-free data transmission for applications such as file transfer and electronic mail. The Transaction Processing Hub provided the quick connections and multiple protocols needed for applications such as credit card verification, point-of-sale terminals, and inquiry response.

Additional areas in which U.S. Robotics planned for future product introduction in 1994 included an even faster modem system run on the "V.Fast" protocol and a cellular modem system called HST Cellular (for "high speed technology"). This system would allow data transmissions over a cellular telephone network, again with adaptive speed leveling, even while traveling between cell sites at 60 miles per hour.

U.S. Robotics raised $28.3 million through an initial public offering in 1991 in which 2,380,000 million shares of common stock were offered by the company. U.S. Robotics worked to avoid excessive debt, keep a lean operation centered on customer needs, and maintain a generous research and development budget.

Changes in the Mid-1990s and Beyond

As surfing the Web became increasingly popular in the mid-1990s, U.S. Robotics was well positioned for success. As part of its growth strategy, the company added Megahertz, ISDN Systems, and Palm Computing to its arsenal in 1995. By 1996, it controlled over one-fourth of the North American modem market, and its earnings had increased by 158 percent over the previous year. In early 1997, it launched a 56K modem, called the x2, ahead of its competitors. The new modem allowed consumers to download information at 56,000 bits per second--a significant jump from the 28,800 bps that was standard at the time.

By 1997, U.S. Robotics had caught the eye of 3Com Corporation, a computer networking products manufacturer. 3Com was the second-largest networking company in the United States behind Cisco Systems Inc. In order to lessen the gap between itself and its main competitor, 3Com made a $6.6 billion play for U.S. Robotics. A February 1997 Wall Street Journal article described the deal as "a bold attempt by 3Com's chairman and chief executive, Eric Benhamou, to challenge Cisco by adding U.S. Robotics's modems to 3Com's growing product offerings."

The merger initially faced shareholder opposition. Nevertheless, 3Com completed its purchase of U.S. Robotics in July 1997. As one of the largest high-tech deals at the time, the union created a $5 billion networking giant that could provide customers with a wide variety of product offerings.

Additional changes were on the horizon for the company as it entered the 2000s. Just three years after purchasing U.S. Robotics, 3Com made the decision to focus on its lucrative networking business. As part of its restructuring, 3Com formed an analog modem joint venture with Taiwan-based Accton Technology Corporation and Singapore-based NatSteel Electronics Ltd. The venture, which took over 3Com's analog-only product lines and business, adopted the U.S. Robotics name and began official operation in September 2000.

During 2001, U.S. Robotics' focus on modems continued. It developed a modem based on the V.92 standard, which increased the speed of the 56K modems. It also set plans in motion to launch broadband modems--modems used for DSL and cable access--in 2002. Solectron Inc. acquired NatSteel Electronics in 2001 and, in turn, acquired a majority interest in U.S. Robotics. In early 2004, Solectron sold its interest to U.S. Robotics' management.

As a privately held company, U.S. Robotics remained a leading provider of analog modems and continued to develop cutting-edge new products related to wired and wireless networks and high speed Internet access. The company planned to focus heavily on the research and development of new technology and pledged to bring products to market that would simplify consumers' lives. With a history of success behind it, U.S. Robotics appeared to be well-positioned for future growth.

Principal Competitors: Creative Technology Ltd.; Multi-Tech Systems Inc.; Zoom Technologies Inc.

Chronology

• Key Dates:
• 1976: Casey Cowell and his partners establish U.S. Robotics.
• 1979: U.S. Robotics launches its first modem.
• 1984: The company moves to a larger factory space in Skokie, Illinois.
• 1991: U.S. Robotics goes public.
• 1995: Megahertz, ISDN Systems, and Palm Computing are acquired.
• 1997: 3Com Corporation purchases U.S. Robotics.
• 2000: 3Com, Accton Technology, and NatSteel Electronics form an alliance to take over 3Com's analog-only modem business; the alliance adopts the U.S. Robotics name.
• 2001: Solectron Inc. acquires NatSteel Electronics and its majority stake in U.S. Robotics.
• 2004: Solectron sells its stake to U.S. Robotics' management.