THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, August 14, 1994 TAG: 9408130248
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY PHIL MURRAY, STAFF WRITER
DATELINE: NEWPORT NEWS LENGTH: Long : 350 lines
Good Friday 1991 found Jack Cowardin wedged into a four-seater Beech Duchess, fighting back nausea as the chartered airplane lurched through an inky fog toward New York's Kennedy Airport.
His mission: fetch 200 expensive electronic panels, the critical component in upstart nVIEW Corp.'s high-tech projection equipment. In the balance, however, was something even more critical - the success of nVIEW's first stock offering to the public just weeks away.
Battling a steady rain on the tarmac at Kennedy, Cowardin managed to pack the panels into the tiny plane and return to the Newport News airport. There nVIEW's president met him in his Chevrolet pickup.
nVIEW's tiny work force toiled through the weekend - assembling, testing, packing and finally loading the projectors into a UPS trailer to book the sales by Sunday, the final day of the company's first quarter.
The hustle spelled the difference between profit and loss for the period, and investors - encouraged in part by the results - made nVIEW the fastest-growing stock in the country by year end.
``It was nuts,'' recalled Cowardin, then nVIEW's production manager. ``But it was fun.''
Operating on the edge may have gotten the adrenal glands pumping at nView, but it ultimately unraveled the one-time darling of Wall Street.
A year after the company's Wall Street debut, Cowardin would find himself repeating that scene: rushing to build and ship products in the final days of the quarter in a futile attempt to meet investors' expectations. Parts were still arriving late.
``I was thinking how ridiculous it was,'' Cowardin said. ``Long-term you can't survive that way.''
Indeed, when nVIEW's sales came up short early in 1992 it touched off a colossal stock sell-off and presaged two straight money-losing years.
As it turned out, that routine, end-of-the-quarter production sprint was just one indication that nVIEW was never the model of business acumen that investors thought it was.
Interviews with current and former nVIEW managers show that the company's young executives ignored warnings from the lower ranks that they were running the company based on unrealistic sales projections; that rapid management turnover contributed to ill-advised shifts in business strategy; and that managers didn't keep a close watch on expenses.
Today, nVIEW has returned to modest profitability, and its executives insist it is firmly back on track. But in the eyes of at least some analysts, nVIEW has lost precious ground to its rivals that may be impossible to make up.
nVIEW's story is not only one involving the difficulties of managing runaway growth. It is also a warning to those betting that high-tech industries will replace this region's shrinking military presence. The message is clear: Hampton Roads is no Silicon Valley.
``There are some dynamics that make this a difficult area to compete in,'' said William Donaldson, nVIEW's former president and chief executive officer. ``You are out of the mainstream, so you have to work a lot harder. . . It's tough attracting people at the mid- and senior management level. You can get good people, but they don't have the same experience level.'' THE EARLY DAYS
Early on, nVIEW had the makings of an American business legend.
It began with Jim Vogeley: Eagle Scout, competitive swimmer, consummate tinkerer.
As a teenager, he worked on a series of Peugeot sports cars. After graduating from Duke University with an engineering degree in 1980, he took a job at Hewlett-Packard Co. Five years later he kissed that button-down existence goodbye and moved into his parents' Yorktown house.
In the basement, Vogeley and his father, a retired NASA engineer, worked on equipment that would allow the handicapped to control computers with their eyes. There, Vogeley developed a device that, when used with an overhead projector, could plug into a computer and display graphics and text on a big screen.
Vogeley figured people who made a lot of business presentations would love it. No more fumbling with slides or flimsy overlays. Easy modifications on the computer.
Good idea. Vogeley built a few and sold them at trade shows. The reaction soon convinced him that he was on to something.
With the help of his mother, who stuffed envelopes and packed equipment, Vogeley started building a business - one machine at a time. Soon, the industry was raving about nVIEW's products.
``Jim is an engineering genius,'' said William Haywood, nVIEW's former vice president of finance. ``He's an incredible talent.''
Like Steve Wozniak and Steve Jobs, the legendary duo who started Apple Computer in a Los Altos, Calif., garage, Vogeley needed a business hand to help run the show. At Apple it was a Pepsi marketing guru named John Sculley. At nVIEW the answer was Willie Donaldson, a young real estate manager. Together, Vogeley and Donaldson built nVIEW into a $4 million company by the end of 1989. In the early days, the mainstay was a flat, gray rectangular box that projected a black-and-white image. It sold for about $6,000.
The real breakthrough, however, came late in 1990 when Vogeley and a handful of engineers at nVIEW finished work on a color model. In the first three months of 1991, nVIEW received more than $6 million in orders.
The key to the new product was a liquid crystal panel built by Japan-based Sharp Corp. nVIEW's engineering, coupled with the panel, delivered a clear, vivid projection.
The panel was an expensive component, and nVIEW needed cash to buy inventory. Encouraged by a growing bull market in new issues, company executives decided to take the company public to raise money.
``In '91, their product was clearly better than the competitors,'' said George Shipp, a stock analyst at Scott & Stringfellow Inc. in Norfolk.
Vogeley and Donaldson were an unlikely twosome when they took their show on the road to Wall Street early in 1991.
Brash and confident at 32, Vogeley was the company visionary. Weekly Thursday morning meetings at nVIEW often featured motivational tapes that Vogeley had listened to in his car.
Donaldson, 34, was the detail man. Lanky with thinning hair, Donaldson ran the show day-to-day. Around them was a group of thirty-something managers: Cowardin, operations; Haywood, finance; and Nelson Brugh, sales.
A young bunch, but eager. The atmosphere was informal. Long days were the norm. Vogeley was known to catnap in his office for a few hours late at night and resume his tinkering before dawn.
It was at this time that Cowardin made his mad dash to Kennedy Airport to retrieve the Sharp panels just before the end of the first quarter. The problem was delivery. Sharp hadn't shipped until near the end of the quarter.
Even so, the company still was small enough to operate that way. It wouldn't always be that way.
``It was a seat-of-the-pants company,'' said Cowardin, who left nVIEW in 1992. GOING PUBLIC
nVIEW raised close to $7 million in its initial stock offering at the end of April 1991. The stock price almost doubled in the first day of trading, from $7.50 a share to nearly $14.
Throughout 1991, the pace of nVIEW's business was dictated by the availability of Sharp panels. Cowardin said they came in batches of several hundred a month, and nVIEW built a backlog of orders.
Impressed by the popularity of nVIEW's machines, investors continued to bid up the price of nVIEW stock. Even after a 2-for-1 split, the share price rose above $31, a more than 700 percent increase from its initial price.
In the final quarter of 1991, the stock of tiny nVIEW, tucked away in a city far from the country's technology centers, was the biggest gainer on any exchange.
Sharp announced it would expand production of its panels. Suddenly, the sky was the limit for nVIEW. Needing more capital to expand production, it was time to go to the well again. nVIEW planned a second stock offering.
Perceptions of nView were great. But what investors didn't know was that things inside nView weren't so rosy. Disagreements were developing among top managers about how many units the company could sell given a bigger supply of panels. No one knew for sure since Sharp's supply essentially had controlled the entire industry for the past year.
Brugh, nVIEW's vice president of sales, argued for a conservative approach: nVIEW's product still was small, and its network of dealers who bought the products was narrow.
But Donaldson, according to company insiders, wasn't listening. He was busy wowing investors with projections of selling 1,000 units a month, a pace that would take nVIEW from $16 million in sales in 1991 to better than $60 million the next year.
``The numbers I would hand in weren't the numbers everybody wanted to hear,'' said Brugh, who later resigned and now works for a competitor, Campbell, Calif.-based Chisholm Inc. ``I think they wanted to be a $100 million company too quickly. The company just didn't have the product line to achieve that number.''
A successful offering was important not only to the company. Vogeley, some of his family members and Donaldson were selling part of their holdings as well. THE UNRAVELING
The stock sale went off without a hitch in January 1992. The company raised about $17 million. Vogeley made nearly $8 million, Donaldson nearly $1 million. At the same time, nVIEW was adding employees. Within a few months, the work force would triple, from about 30 to 90 people.
Despite cash in hand, the supply of Sharp panels continued to dribble in. Donaldson, however, kept a positive public face. He told the Bloomberg financial news service in February that he was ``comfortable'' with analysts' expectations of large sales and earnings increases at nVIEW.
Finally, a big shipment, more than 1,200 panels, arrived just six days before the end of the March 31, 1992 quarter.
Once again Cowardin was pressed. Despite several glitches - including a last-minute reprogramming for components that allowed nVIEW products to work with different computer operating systems - the projectors were finished and shipped in time.
But the sales numbers for the quarter were far short of expectations. nVIEW blamed the late shipment from Sharp and promised investors that would not be a problem in the future.
That turned out to be true. But nVIEW now had a different problem. When the logjam of Sharp panels broke for nVIEW, it broke for its competitors as well. And nVIEW dealers were so stuffed from the company's massive end-of-the-quarter shipments, they didn't want to buy more.
Finally, reality set in: nVIEW would not get even close to its sales goals. Investors bailed, and the stock plunged to levels near its original price. The bottom line also took a hit: For 1992, nVIEW lost $2.4 million.
Some former nVIEW managers say egos got in the way: Vogeley and Donaldson started to believe they could do no wrong.
``I think they were unduly flushed with success in the early days and ill-equipped to handle the normal problems that come up,'' said Eugene Rubin, a stockholder and former Revlon Inc. manager who has followed the fortunes of the company. ``I'm disappointed. They had a good product and they had it at a time when they could have been successful.
``Now there's more competition, and they're saddled with past mistakes.''
Others were less kind. Strategic Investment newsletter, which earlier had called nVIEW its 1992 stock pick of the year, ran an item in a June 1992 issue trashing nVIEW, saying: ``Management was so misleading we believe they can't be trusted.''
Two shareholder lawsuits, later dismissed by a federal judge, accused nVIEW of being disingenuous.
For his part, Donaldson says the sales goals were achievable, but recession in Europe and other factors conspired against the company.
``There always are disagreements,'' Donaldson said. ``It was doable. It's easy in hindsight to say they weren't.''
Vogeley offered no apologies. ``I don't think I would have changed anything. We took the risks and we did take some losses. But it's put us on a basis where we can really grow the business.
``From my perspective, this company has been wildly successful.'' THE FOILED RESCUE
Around nVIEW, John Purner was known as the Reverend. With his Texas drawl and grab-you-by-the-lapels intensity, it was easy to see why. He looked and sounded every inch the Southern preacher.
Purner arrived at the end of 1992 with a pedigree in sales that included stints at IBM and AST Research Inc. And he was supposed to lead nVIEW to the promised land.
He was the second of two industry pros brought in to right the ship. The first, a former colleague of Vogeley's at Hewlett-Packard named Robert Hoke, lasted about six months.
Coming from the starched-shirt culture at IBM, Purner had disdain for the informal atmosphere at nVIEW. Among his sales people, it was known that you had to wear a white shirt and suit to work, even if you spent the day working the phones.
Purner was given a free hand to run the sales operation. His first step was to eliminate nVIEW's network of commissioned representatives and build an in-house sales force.
The Rev. Purner worshiped the god of sales. Indeed, the second quarter of 1993 set a record in volume. But it came at great cost for nVIEW.
Part of the pitch was the proper image. Former salesman Ron Peterson, who worked the Northern California market, said he routinely stayed in $100 a night hotels and entertained customers in tony San Francisco restaurants to the tune of $400 to $500 a pop.
The sales force also cut a lot of deals with buyers in the final days of each quarter to boost the numbers. But dealers, rather than paying full price, started waiting for the end-of-the-quarter bargains.
``I'd never seen anything like it,'' said Peterson, now a salesman for Dale Carnegie Training, ``the way everyone at the end of every quarter went nuts to get the product out the door.''
Purner's final push was to take the sales pitch directly to the people who used the projectors. But nVIEW's dealers bristled at the idea of being bypassed. Many threatened to stop buying nVIEW products altogether. They raised hell with Donaldson.
Shortly thereafter, Purner called into his office voice mail from Texas. It was late August. Among the messages, Purner says, was one from Donaldson telling him not to bother to return. He was fired.
``nVIEW in the past has come up with some very good technology, but translating that into a finished product, and something someone is going to buy over and over again, is a horse of a different color,'' said Purner, now a consultant working in Germany.
``I felt like the fool on the hill. There wasn't anyone who had any experience you could hold a lucid conversation with.''
nVIEW's final change in course was an aborted acquisition plan.
With sales and earnings flagging, Donaldson began negotiations to buy a unit of Martin Marietta Corp. that made equipment for projecting huge images in things like flight simulators and stadium replay screens. Donaldson considered it a good fit.
On Oct. 20, nVIEW announced it had signed a letter of intent to buy the operation. But Vogeley and the board later got cold feet. Donaldson continued to push for it. He lost.
nVIEW dropped the idea. Two months later, at the end of a second money-losing year, Donaldson was gone.
``I believed nVIEW had an opportunity to grow dramatically through acquisitions,'' said Donaldson, now a consultant and MBA student at William and Mary. ``The alternative was blocking and tackling - back to basics - which is what they've done.
``Reasonable people can disagree.'' PROFITABLE, FOR NOW
The back-to-basics theme began early this year with a layoff of more than a dozen people, many of them Purner's sales force. It happened over two nail-biting days as employees were told one by one.
``It got kind of hairy at the end,'' said former salesman Brian Runge, one of the last to get the ax.
But the layoff, along with cutbacks in marketing and other expenses, has restored nVIEW to profitability this year. In its latest quarter, nVIEW earned $577,000 on sales of $9.78 million.
The architect of the retrenching is Joel Carney, a production and engineering manager at nVIEW recently elevated to chief operating officer and elected to nVIEW's board.
Under Carney, nVIEW is supplementing its high-end product line with a cheaper model it sells to other manufacturers. He also has slashed the company's sales and marketing expenses, among other areas of the budget.
Those changes, along with new products and expected industry growth, have Vogeley talking confidently again.
By one independent estimate, the $300 million market shared by nVIEW and its competitors is still in its infancy and forecast to grow by 25 percent a year. Vogeley now wants to generate more interest in nVIEW stock among institutional investors. The stock was trading last week below $6 per share.
``We're back in the growth phase,'' said Vogeley. ``We're not putting down our tools and going into another business.''
With an estimated 11 percent of the market, nView generally is considered No. 4 in the list of industry players. While nVIEW struggled to find its footing over the last two years, its competitors stayed busy. The top two - Wilsonville, Oregon-based In Focus Systems Inc. and San Diego-based Proxima Corp. - have been steadily building sales and profits.
Some analysts say nVIEW has fallen behind in the critical area of product development, particularly in developing self-contained projector units. nVIEW says it is working on a new lightweight model of its bulky Luminator projector. But Proxima is winning rave reviews with its 18-pound Desktop Projector 2800.
``The stand-alone projector separates the men from the boys,'' said Jeffrey Kilpatrick, president of Newport Securities Corp., a brokerage in Costa Mesa, Calif. ``I've talked to retailers and it's clear that In Focus and Proxima is what they are selling.
``nVIEW is in the unfortunate position of being the tag-end player in the market. Those other two companies may squeeze them out from above.''
As the products gain wider acceptance in business, nVIEW should have a place in the industry, other analysts say. But it likely will have trouble keeping pace with its larger rivals.
And investors should still hang on to their hats.
``The company is very typical of a small, technology-based company,'' said analyst Shipp. ``There's a lot of opportunity, but it's going to be volatile and unpredictable.'' ILLUSTRATION: Color photos
MARTIN SMITH-RODDEN/Staff
James Vogeley, founder and chairman of nView Corp., with a
projection unit that his Newport News company produces. The company
was built on Vogeley's marriage of overhead projectors with computer
technology..
Roxanne Barr installs a liquid-crystal display panel in an nView
product in the company's assembly area at its Newport News plant.
Graphics
STAFF
nVIEW'S STOCK PRICE
SOURCE: Nasdaq Stock Market, reported through CompuServe
nVIEW AND ITS RIVALS
The companies have grown at similar rates...
[For complete graphics, please see microfilm]
Photos
MARTIN SMITH-RODDEN/Staff
Joel Carney, until recently a production and engineering manager at
nVIEW, has been made chief operating officer and elected to the
board. He has cut nView's sales and marketing expenses, among other
budget areas.
FILE
William Donaldson, right, is nVIEW'S former president and chief
executive. He and James Vogeley, left, built nVIEW into a $4 million
company by the end of 1989. Donaldson is now a consultant and
William and Mary MBA student.
by CNB