Power Computing's Power Duo
Stephen S. Kahng's Power Computing Corp. is the fastest-growing computer startup of the 1990s. Founded in mid-1993, it should hit $700 million in sales in 1997, analysts say. Power makes superfast products, employs the direct-sales model that made Dell Computer Corp. and Gateway 2000 Inc. Wall Street stars, and has been profitable all along. Yet Kahng has spent more than a year looking for a banker willing to take it public. The problem: Power makes clones of Macintosh computers, the flagship product of troubled Apple Computer Inc. Says one investment banker who decided not to handle an initial public offering for Power last year: "Steve has been doing a wonderful job, but he's in a terrible situation."
Now, Kahng is out to change that, and he has brought in former Dell marketing whiz Joel J. Kocher to help. Their plan is to expand beyond the relative protection of the Mac market into the cutthroat PC arena. "What we sell doesn't matter," says Kahng. "We just want to build the best computer company in the world."
Clearly, diversification was Khang's plan from the start--thus his relentless pursuit of Kocher (pronounced KO-her), who presided over Dell's huge growth in the early 1990s. Kahng first approached Kocher 10 days after he left Dell in 1994. He persisted even after Kocher joined Tucson-based software maker Artisoft Inc., and last November, Kocher joined Power as president and operations chief. Now the stakes are even higher than expected. As Power readies its thrust into PCs, Apple is considering changes in its licensing strategy that could undermine Power's core business. And Apple's ongoing problems--as well as uncertainty about a possible Apple takeover by Oracle Corp. chief Lawrence J. Ellison--could keep Power's IPO on hold, depriving the company of a cash cushion as it tries to forge a niche in PCs.
WORSHIPED. Kahng and Kocher present a striking contrast. Kahng, a soft-spoken 47, is a prototypical engineer--"the nerdiest of the nerds," says venture capitalist Paul H.J. Kim, a friend and Power investor. Kocher, 40, couldn't be more out in front. At Dell, he was worshiped for his elaborate pep rallies and impassioned speeches. Kocher "demands, inspires, attracts, and coaches greatness," says Savino Ferrales, Power's new human resources vice-president, who worked with him at Dell. Kocher also helped Dell perfect its approach to direct selling, a key to Power's strategy. Says Power Vice-Chairman Enzo Torresi: "Steve's the world expert in product efficiency, and Joel knows best how to deliver technology to market."
In his few months on the job, Kocher has tripled capacity and begun construction of PowerTown, a long-planned 150-acre headquarters in Georgetown, Tex. He's spending millions on information systems and communications gear, laying the groundwork, he says, for a multibillion-dollar company. He says the push into PCs could come in 1998. Other insiders say it could happen this summer.
Kocher's goal is to avoid the operational blowouts that plagued him at Dell. In 1994, as Dell fought to hold together its overtaxed systems, Motorola Inc. veteran Morton L. Topfer was brought in as co-CEO. Kocher quit soon after. "I know from experience," he says, "that the time to prepare to be a $2 billion company is not when you're a $2 billion company."
The many obstacles Power faces mean Kahng and Kocher must execute almost flawlessly. The market share of Macs and Mac clones has fallen from 7.9% in 1994 to a projected 5.4% this year. Now, Apple says it may more than double licensing fees, which one investor says could halve Power's paltry 5% net margins. Worse, the companies disagree about whether Power has rights to Apple's next generation of software. And Apple may prove more of a rival in the future. On Apr. 4, for the first time since Power set up shop, Apple beat the cloners to market with Macs featuring the fastest chips.
Still, Power is counting on growth in Macs. It recently set up shop in Europe and Japan and assembled a corporate sales team, and it hopes to field a portable Mac clone soon. Should Ellison buy Apple, Power's Mac profile could get even bigger. Industry executives say he'd probably focus on licensing software and sell off Apple's hardware units--and Kahng says Power could be a buyer.
The move to Windows, whenever it comes, will be as tricky as any curves Apple might throw. Creating a niche among the hordes of PC makers is a monumental challenge. And Power won't get special treatment from chipmaker Intel Corp., as it has from IBM and Motorola, who see it as an ally in promoting their PowerPC chips. If there's no IPO, moreover, Power will have little margin for error when it does diversify. Power has been able to sell all it can make to tech-starved Mac customers, but one poorly conceived PC product could quickly lead to losses.
Still, no one is inclined to count Kahng and Kocher out. Power represents the second time Kahng has helped launch a clone industry. A decade ago, he designed the Leading Edge PC, the first low-priced alternative to IBM's product. The consulting career that followed left him with a circle of powerful friends. While rivals scrambled for memory chips in 1995, Kahng had all he needed thanks to ties to Korean chipmaker Samsung Electronics Co. "Steve is very, very good at working behind the scenes," says Kevin Bohren, president of Traveling Software Inc. and a former Compaq Computer Corp. executive.
His new No.2, Kocher, made his mark early, as a top salesman for Radio Shack at age 24, and he ran most of Dell's operations before he quit. Joining struggling Artisoft seems to have been a misstep, yet Kocher's charisma is undimmed: He has persuaded several old colleagues to take pay cuts to join him at Power.
He's rapidly putting his stamp on the clonemaker. At his first all-company meeting, the roar of choppers shook the room as fatigue-clad managers ran in, chanting slogans and tossing leaflets. Kahng slammed down a gavel, declaring: "The Cultural Revolution has begun!" then gave the floor to Kocher, who read a lengthy letter from a customer lambasting Power's service. Kocher then introduced the customer, who went on complaining. "Everyone was expecting a rah-rah session, but it was more like root canal," recalls Kocher happily. He has imported a trademark gambit, requiring staffers to wear fatigues every Friday, "Fight Back for the Customer" day. He charges staffers $1 a minute if they come late to meetings and $2 every time their cellular phones ring.
Kocher's needle seems stuck on "motivate." Second wife Anne Marie, once Dell's government sales chief, recalls when he discovered that her adolescent son was a lackadaisical basketball player. He drilled the boy an hour a day until he made the freshman team. "Now, Anthony is an animal on the court," she says. "That's what makes Joel so unique: He's willing to roll up his sleeves and show people the way."
Kocher's flamboyant leadership makes him a foil for Kahng, whose reticence has always inspired teasing. Even Power employees consider him fair game. Marketing manager Mike Rosenfelt once decided to offer Kahng's Mercedes, which had 240,000 miles on it, as a booby prize in a raffle. "Whatever it takes to give a good show," shrugs Kahng. At January's Macworld trade show, Power's posters portrayed Kahng as a fierce revolutionary out to rescue the Mac. Techie attendees ate it up. At an after-hours party featuring singer Lyle Lovett, Kahng drew thunderous applause after mumbling an introduction, hesitantly shaking his fist, and softly intoning: "Fight back for the Mac!"
However mild-mannered, Kahng is focused. When he moved to the U.S. from Korea at 19, he already hoped to run a high-tech company. After earning a computer-science degree at the University of Michigan at Ann Arbor, he headed to Silicon Valley as an IBM mainframe engineer. Technology has absorbed him ever since. Says Kim: "He only sparks up when you talk work."
That singlemindedness has made him wealthy. He and his wife of many years, Choongja, own a sprawling home down the street from such industry luminaries as Intel's Andrew S. Grove. Yet Kahng, who controls 28% of Power, is famous for thrift--witness his aging Mercedes. And since moving Power to Austin in 1995, he has lived most of the time in an apartment there. (Kocher has invested $1 million in Power since he joined.)
To get the IPO that will let them proceed aggressively, Kahng and Kocher must show that Power can succeed beyond the Mac market. Vice-Chairman Torresi says the key is not selling Wintel PCs but persuading Wall Street that Power could. "Readiness is very important," he says.
Power's not quite ready yet. While the IPO is tentatively scheduled for May, it could be delayed again, say Wall Streeters. Notes one observer: "Every time Power wants to pull out into the passing lane, they're covered with black smoke"--more bad news about Apple. But Apple could be slowing traffic for some time to come. Sooner or later, Kocher and Kahng have to make their move.