Bay Networks' Mr. House Finds His Fixer Upper

Former Intel exec David House is turning Bay Networks around--and taking aim at Cisco

When David L. House left Intel Corp. in 1996 to head struggling Bay Networks Inc., it looked like career suicide. But after 22 years as a rising star at Intel, including 12 years as head of its core microprocessor business, House hankered to run his own show. And Intel CEO Andrew S. Grove had already made it plain that House would not succeed him. "It was time for Dave to go out and lead," says Marty Ruberry, a longtime friend and racquetball partner.

If any company ever needed a leader, it was Bay Networks. Formed from the uneasy 1994 merger of two smaller companies, the $2 billion maker of computer networking gear was deeply troubled when House took charge. While industry leader Cisco Systems Inc. grew fivefold, Bay missed product launches and lost market share. Employees defected in droves while the leadership vacuum, says House, "spiraled down" to "almost chaos and anarchy." Worse yet, customers were losing faith. When DreamWorks SKG networking director Petrus Wilson suggested buying Bay gear last year, his boss just "looked at me cross-eyed," he recalls.

No longer. In 15 months at the helm, House, 54, has thoroughly revived Bay with a series of savvy acquisitions and the strict imposition of Intel-like management discipline. These days, investors and customers alike--including DreamWorks--are elated with the hard-charging exec, who is so full of energy that his Intel colleagues once gave him a T-shirt reading "Captain Adrenaline." Says Prudential Securities analyst Luke T. Szymczak: "People thought this company was on its deathbed a year ago, and just look at what he's done."

A driven manager, House trained at the knee of Grove and survived years of Intel's rough-and-tumble culture. He's proud of his endurance and self-control, boasting that on a recent business trip he held seven meetings in nine hours, did more business on his car phone, and then attended a dinner. "He's a very disciplined guy and very orderly in the way he goes about things," Grove says.

Tall and fit, House also exudes a confidence honed from years as Intel's smoothest front man at countless public events. Yet those who have worked with him describe House as unpretentious and down-to-earth. He regularly eats lunch in the company cafeteria and even led the staff in the macarena at Bay's recent holiday party in San Francisco. Last July, he ran around Bay's summer barbecue in a raincoat, dousing employees with a squirt gun, says sales and marketing Vice-President Dave Shrigley.

HOT SWITCH. More than mere antics, these gestures have gone miles to revitalize Bay's once dispirited staff. Indeed, the company is off to a sizzling start in fiscal 1998: Earnings rose to $89 million for the first half, up from a $167 million loss last year. For the full year ending June 30, Wall Street expects profits to hit $243 million, on 28% sales growth, to $2.7 billion. Optimism about 1998 helped double Bay's stock from 20, when House took over, to 42 last October, though it has since fallen, along with other technology stocks, to around 30 on fears of an Asia-led industry slowdown.

To get those kinds of results, the hyperkinetic House dug down to the roots of Bay's malaise, sending out teams of execs to interview customers and employees. To boost morale for nonexecutive employees, he reset the price of Bay's stock options to $19.50--well below the elevated level many were stuck with before Bay's stock tanked. And he taught his own classes in management skills to 120 top executives. The result: Turnover has dropped by nearly half, from 27% annually a year ago to a more typical Silicon Valley rate of about 16% now.

Next, House broadened Bay's product line. Last June, he nabbed Rapid City, one of a dozen startups pioneering ultrafast "gigabit" switches. Meantime, Bay's 1996 acquisition of NetICs has paid huge dividends with a hot-selling network switch that is handily beating out Cisco and 3Com Corp. "It was a grand slam," says analyst Noel P. Lindsay of Deutsch Morgan Grenfell.

House is just as intense at play as he is at work. A fastidious dresser known for his tailored suits, House schedules his life down to the minute. He exercises five mornings a week at 6 a.m. sharp--three days of weight lifting with a personal trainer and two days of racquetball. He plays so rough that he has sent five opponents to the doctor for stitches, says friend and Intel Vice-President Michael Aymar. A helicopter skiing fanatic, House prides himself on battling the mountain from dawn until dusk: "I've never quit before the chopper did." Grove, a skiing buddy with whom he remains on friendly terms, quips that House is "a wild skier--far more guts than skill."

That may be true on the slopes. But in life, House has always had plenty of both. "Dave always seemed to know what he was doing," says his father, Norman. One of four children in a working-class family in Muskegon, Mich., House hustled for extra cash--shoveling snow in the winter or reading utility meters in the summer. He contemplated a career in mechanical engineering until a high school teacher convinced him that the future lay in electronics.

After earning degrees in engineering he went to work for Honeywell Inc. as a computer designer. Then in 1971, his boss posted a clipping about a new microprocessor from a small California chipmaker. House understood immediately that the chip, called the Intel 8008, would transform computers by radically reducing their cost and size.

House eventually joined the scrappy upstart in 1974 as a technical marketing manager. As Intel's fortunes soared, so did House's career. With a knack for translating technical jargon into snappy phrases even nontechies could understand, by 1976 he was named marketing manager for microprocessors. During his tenure, Intel grew from $68 million to $20 billion in revenue and House presided over the launch of every major chip from the 286 to the Pentium. One of his greatest successes came when he devised the slogan "Intel Inside" in 1991, helping to establish it as one of the world's best-known brands.

For all his achievements, though, House was passed over for the top job when Grove decided the same year to give the nod to operations guru Craig R. Barrett. Intel had become a manufacturing powerhouse, and that wasn't House's forte. Always the trouper, he stayed on as a top corporate strategist until he left to run Bay.

BUSY YEAR. In part because of his grueling schedule, House says, his two marriages have ended in divorce. With two grown children and a stepson, he likes to indulge in grand gestures, like splurging on a two-week Mediterranean cruise for 11 family members and pals. Once, he even took both his ex-wife and future wife shopping together and wound up buying each a piano. "He does things 120%," says Ruberry.

Cruises aren't likely to be on House's 1998 calendar. He'll be working harder than ever to fend off expected price-cutting by Cisco and others. But the looming battle is dismissed with characteristic bravado: "Cisco is a bit arrogant." House argues that buyers are eager for a choice. He has been right so far. Now, Captain Adrenalin just has to keep leading with as much skill as guts.

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