Chuck Kissner

Chuck Kissner may be one of those glass-half-empty kind of guys — call him pessimistic. He may come off as a curmudgeon, but a gloomy attitude and a healthy dose of paranoia can go a long way in this industry when your stock is in the tank and your customers are going bankrupt. It's an attitude that helped him drag DMC Stratex from the brink of disaster three years ago, Kissner says, and it's the same attitude that will get his company through the current economic storm.

“Our expectations are much lower than others,” says Kissner, DMC's chairman and former CEO. “In 1998, we were just entering a downturn in the Asian economy. We lost 45% of our business in six months. It left us determined that we'd never let that happen again. We needed to insulate ourselves.”

Insulate themselves they did. DMC — then called Digital Microwave — revamped its product line, scaled down its debt and branched out into other technologies and sectors. While focused mainly on manufacturing cellular radios for mobile infrastructure, the company began looking toward microwave backhaul and point-to-point fixed-wireless systems.

“We lived to fight another day. In fact, we emerged as the industry gorilla,” Kissner says.

But the specters of 1998 have returned, this time not in Asia but at home, where the CLEC market is collapsing. DMC and all those that occupy the broadband wireless space are now watching Wall Street's competitive darlings file for Chapter 11 protection. The ones that haven't gone bankrupt are scaling back expansion plans and consequently canceling equipment orders.

DMC was hit hard. Net income for fourth quarter 2000 fell 12% from $7.3 million to $6.4 million. Even worse, the company hasn't been paid for some of the products it did sell. DMC dipped heavily into reserves to account for receivables and inventories. Factoring in those reserves, the company reported a net loss of $39.2 million. Fourth quarter problems discounted the year's profits, causing the company to report a $7 million loss for the year despite a 40% increase in new orders and 24% increase in sales.

But while most corporate executives are donning their happy faces — grinning their way through explanations of slashed earnings and preaching the gospel of emerging markets and better times to come — Kissner is maintaining his scowl. The chairman is brutally frank about the fixed-wireless industry's near-term prospects and the prospects of his own company. Fixed-wireless equipment sales to carriers have already fallen from about 35% to 15% of DMC's business in one quarter. Before the CLEC fallout clears, he expects it to drop to 10%.

“We've pretty much counted that business out for next year,” Kissner says. “Things could get better, but we've found it's best to be realistic about these matters.”

So is Kissner worried? No. In fact, in his own paradoxical way, Kissner is excited. This is the storm he's been preparing for since 1998. Now he finds out if the mechanisms he put in place three years ago actually work.

Kissner says DMC's restructuring after the “Asian Flu” of the late '90s involved more than just finances. While he wiped most of the company's debt from the books and reformulated its business plan, he also revamped DMC's philosophy. DMC diversified its product lines and started partnering with other companies to fill in the gaps. Instead of testing the torrid waters of point-to-multipoint with its own solution, DMC penned an OEM agreement with Ensemble Communications.

DMC began monitoring macroeconomic conditions closely, paying particular attention to the liquidity of capital markets instead of simply following customer demand. When the markets started faltering, Kissner says, DMC began scaling back its business plan before shipment cancellations started rolling in. While many would consider his approach conservative, Kissner has very little doubt DMC will emerge from the current crisis healthy and with fewer competitors to contend with in the aftermath.

Unlike many of the one-product wonders in the broadband wireless space, DMC's primary business is still cellular radios. While CLECs may be digging in for the moment, wireless carriers have committed billions to building out 3G networks over the next three years, all requiring network upgrades and in many cases entirely new networks. And while CLECs may not be buying DMC's Altium point-to-point equipment, it's essentially the same product DMC uses for its cellular backhaul systems.

“We'd rather have the 3G networks,” Kissner says. “We're pretty sure it will be a robust business.”

Kissner says he's honestly confident about the future. So far DMC has had to slash its growth projections, but Kissner says that was expected. The company hasn't had to cannibalize its ranks to recover salary costs, and DMC's wireless business is even showing signs of growth, he says.

If Kissner admits to any fault, it's that he wasn't pessimistic enough. DMC, in part, succumbed to the temptations of loose-fisted corporate investment last year, spending $15 million on small stakes in other technology companies. And despite all of Kissner's preparation and anticipation, the sheer speed at which the financial markets plummeted took him by surprise.

“We've been paranoid about this for a long time,” Kissner says, “but we can't be prepared for every contingency. It could get even worse than we imagine.”

Perhaps he isn't being paranoid enough.