Symbol: A Question of Trust
One month into his tenure as interim CEO of Symbol, a maker of bar code scanners and mobile computers, Sal Iannuzzi has his hands full. Symbol's fourth CEO in five years, Iannuzzi inherited a company struggling to boost sales and retain market share. It's also fighting off a flood of shareholder lawsuits.
. In recent months almost everything that could go wrong for Symbol (SBL ) did. In July the CFO left. In August, Symbol's CEO of nearly three years, Bill Nuti, split to head another company.
Symbol is being sued by investors irked by a series of what they consider overly optimistic earnings targets. And its financial performance is slipping. In August, Symbol said second-quarter revenue declined 1.2% from a year earlier, to $428 million, with a resulting loss of $30 million, vs. a profit of $29 million in the same period last year.
rebuilding the management team falls to Iannuzzi, who must regain the Street's trust. He's under pressure to improve results and foster growth in promising new markets such as radio-frequency identification (RFID), a technology that helps companies track products. With the increasing use of RFID in processes from supply-chain management to manufacturing, "I think the [revenue] opportunity is going to be very, very large," says Iannuzzi.
BREAD AND BUTTER
Iannuzzi, a Symbol board member since December, 2003, appears on his way to righting the ship. On Sept. 6 he ended a prolonged legal battle with rival Intermec, a part of UNOVA (UNA ), over RFID patents. Symbol has agreed to license Intermec's intellectual property, and the companies expect to resolve all disagreements within the next few months.
"This is a good foundation for [Symbol] to go on," says Chantal Polsonetti, an analyst with tech consultant ARC Research. Symbol's product development efforts are moving full speed as well and is on track to refresh its product line within a year, says Iannuzzi. Following years of accounting restatements, "we are entering a phase of more normal existence, if you will," he says.
Still, the only thing normal about Symbol's existence now is that it still has a lot of work to do, says Chris Quilty, an analyst with Raymond James & Associates. The next few months look grim: Sales are likely to decline for the entire second half of 2005, vs. last year's figures, Quilty estimates. Symbol also may be losing market share in mobile computing, and it's facing steeper competition in its bread-and-butter bar-code scanners. "We remain very confident in our market position," says Iannuzzi.
Worse yet is the continued uncertainty surrounding Symbol's leadership. "The company is probably going to struggle through a period of continued management turnover that competitors are going to take advantage of," Quilty says.
So how is Symbol's CEO search going? Iannuzzi talked about that, the deal with Intermec, and new products with BusinessWeek Online reporter Olga Kharif on Sept. 15. Edited excerpts of the interview follow.
Would you consider taking on the CEO role permanently?
No, I would not. I have been emphatic from the beginning that we should start a full and comprehensive search for a CEO that has more experience than I do in the industries that Symbol deals in. It's a company, I think, with enormous future and enormous capacity, and we should always try to get the very best people we can.
That does not mean that I will not continue to be involved with the company. I intend to be involved, and involved for quite some time.
How close are you to recruiting a new CEO?
The search is ongoing and progressing. We have seen several people, and I am sure we will be seeing more. I can't give you a time frame, because we want to make sure we select the right person.
You've had four CEOs in five years. How do you stop the revolving door?
I wouldn't categorize it as a revolving door. The company has had, in its history, quite a lot of stability in terms of its CEO. Bill [Nuti] was in the role for almost three years, and I believe he did an excellent job turning the company around.
[Following accounting improprieties], the company was in an extremely precarious situation, and he guided it through that period. The company owes him a debt of gratitude for accomplishing that. Bill simply left to reach his own career goals, of being a CEO of a Fortune 50 company.
You said that Bill has gotten Symbol out of a precarious situation. How would you describe the situation at Symbol, which is losing money and reporting declining revenues, now?
The company is much more advanced than a few years ago. There's tremendous progress in refreshing our product line and redirecting our sales force. We are in a position in 2006 to be able to produce over 400 million RFID tags. We are positioned strongly for the future. And we've invested well over $100 million into business transformation, buying sales, human resources...so we can be more efficient. An enormous amount of money has been invested in positioning the company to be much more robust.
I think what has happened is, you never get it all right. I happen to be a student of [former GE (GE ) CEO] Jack Welch, and Jack made an awful lot of right decisions, but I am sure there are a couple he'd like to take back. I know that's true because he said so.
One of the most serious errors we made is, we got ahead of ourselves as to where the company would be in regards to its revenues. And our execution wasn't as quick as the projections we made. That was a mistake, a serious mistake, because it has had an impact on our credibility, particularly on Wall Street. Having said that, it doesn't diminish the foundation that has been laid and where we will be in the future.
What are your plans for new products?
Our refresh of the product line is continuing. Part of the problem with this company is that there has not been a product refresh in many years. Some products were using technology that was 12 years old. It was very profitable to do that, because you've taken a lot of the cost out, but not exactly a sign of innovation at the company. I think that's largely behind us, and that will certainly be behind us within a year.
Today, 53% of the company's sales come from new or refreshed products. Mobile computing and advanced data-capture businesses, are, no question, the bedrock of this company. You will continue to see products in this area rolled out. We believe we are the leader there today, but by the time these products come out next year, there will be no doubt. We've also, obviously, made a huge bet on RFID, and you'll see improvements and new products there.
Speaking of RFID, you recently ended your patent dispute with Intermec. That was a big surprise, since almost up to the date of the agreement you said you'd never work together. What happened?
We all have our different styles. While [former CEO] Bill [Nuti] and I obviously co-existed -- I as chairman, and he as CEO -- for several years, and I consider him a friend, our approaches differ.
My approach is that war between two companies is not good business. Intermec's CEO and I made contact with each other, and we both felt there was an opportunity here to reach agreement where there wasn't a winner and a loser, and where both of our companies would win. And over the next several months, I hope, we will be able to reach agreement on several other areas.
We decided to spend the money on improving our products, moving our products forward, and servicing our customers better rather than to fight each other in the courtroom.
The RFID field is becoming a lot more crowded, with giants like Hewlett-Packard (HPQ ) and Sun (SUNW ) pushing in. Can you effectively compete with these companies?
We not only are competing but we are winning. No one else has made the progress that Symbol has made in terms of being able to put together the kinds of RFID installations that we have. Now, with the Intermec agreement in place [and new products resulting from this agreement], our position is extremely robust. This is our turf, and no one is going to take it from us.
The turnover among your salespeople has been high. What are some tweaks you are implementing to make your salespeople more effective?
We need to expand into different vertical markets that we are simply not in to any great degree, such as health care and manufacturing. We need to expand into different geographic areas. We believe Asia to be wide-open for us. We have two salespeople to cover China -- I think that's a ratio of one salesperson for every 750 million people! I think we should do a little bit better than that.
A lot of people are still unhappy with the results of the restructuring -- not just the latest one, but the company's efforts over the past several years. What's your evaluation of the progress Symbol has made?
We are entering a phase of more normal existence, if you will. It's hard for people, I guess, to accept, with the changes we've had. But really, the company is in a much more steady space. And out of that come opportunities where we can eliminate costs. Also, we are maturing and are able to become much more efficient, so we will continue to show a reduction in expenses.
Can you get out of these recent difficulties on your own? Recently, there's been talk that the company might get acquired.
Symbol, categorically, is not for sale. Our hope and our desire is to remain independent and to grow.
Having said that, our responsibility is to maximize shareholder value. If someone comes along who is willing to pay a fair price, I am not sure we could resist that. But our desire, our goal is to remain independent and to grow this company.