Work in progress Featured

7:00am EDT November 22, 2004
Few industries have changed as rapidly as telecommunications during the last few decades.

Thanks to deregulation and new technologies, many leaders of companies that compete in the space have struggled to successfully lead their businesses through the changes. And Applied Innovation Inc. CEO, President and Chairman Gerald Moersdorf Jr. is no exception.

"When I first started the company, there was one prime supplier to the industry -- Lucent," says Moersdorf. "Lucent was one big, happy company. It was hard to get clients to buy anything that wasn't Lucent. Now, it's tough to get them to buy anything at all."

Post-deregulation, there are more opportunities for other suppliers and the industry is more fragmented, but Applied Innovation's sales have been slow to increase due to the sluggish economic recovery.

"Because of deregulation, there is a wide variety out there," says Michael Keegan, executive vice president and COO of Applied Innovation. "There are more carriers and more technology. Access to that technology is varied, through cable and satellites."

Moersdorf founded the company in 1983 to meet the increasing demand for telecommunications network mediation equipment. At the time, many of the technologies that businesses have become dependent on today, such as cellular phones, didn't exist.

"You saw someone at dinner with one of those brick-like phones and thought, 'How rude,'" Moersdorf says.

Moersdorf's strategy, which is designed to provide clients with customized solutions to their telecommunications needs, proved successful, and the company grew. In October 2000, Applied Innovation reported third quarter net sales of $31.2 million, and its future looked bright.

Then the technology bubble burst.

It didn't take long for the company's fortunes to reverse. Instead of plotting his company's growth, Moersdorf was forced to restructure the business.

In August 2002, anticipating substantially lower sales, he reassumed the mantle of president and CEO, a role he had tapped Robert Smialek to handle in July 2000. He also undertook the difficult task of reducing the number of employees -- from 250 to 150 -- and consolidated numerous departments, cutting the company's product and service offerings.

Smialek was one of many -- including the vice president of sales, vice president of marketing and business development and vice president of wireless business development -- who were let go.

"Losing as many people as we did was not easy," Moersdorf says. "But we had to make the equation work for our shareholders and our customers. The changes were driven by our financial reality. Twenty of our customers just disappeared. It was easy to figure out which products to kill. It was much harder to decide which people we needed to let go."

Moersdorf also realized the company's customer base wasn't diversified.

"We had long-term relationships with domestic, regional Bells," he says. "They were the bulk of our business. Since the slump, we have been looking to diversify."

Still under reconstruction

Moersdorf's strategic changes have ushered the business through the last few years since the company's 2002 restructuring. But Applied Innovation remains a company in flux.

"We are all still trying to figure out what formula makes good sense," Moersdorf says.

One tactic Moersdorf and Keegan plan to incorporate into future strategies is to leverage Applied Innovation's strengths.

"We have a lot of knowledge," Keegan says. "After 20 years, we have an excellent understanding of how to design and manage networks and services."

Keegan says the company is also what he calls "vendor neutral."

"Most companies just want to sell a lot of their own products," he says. "We don't shy away from integrating third-party hardware and software to solve customer problems."

And, Keegan hopes to leverage existing customer relationships.

"Our customers depend on our engineering skills to solve their problems," he says, "which means time, patience and testing. It's a long sales cycle. A lot of companies don't have the patience for it, especially for relatively small orders."

Keegan says the company's niche has become providing smaller-size solutions to big companies.

"We sell to the same companies as Cisco and Novell," he says. "We solve problems when their products don't fit."

In order to solve the company's diversification problem, it has increased its efforts to sell outside the United States and to new markets within the country, and broadened its product offering. And Moersdorf says, it will continue to look for new opportunities.

"We are searching for new products and new markets," he says. "The government and military are two markets with great opportunities. And the cellular business is growing. We hope to have more penetration in government markets."

The company's marketing group now meets with customers regularly to discuss their problems and concerns.

"We listen to their problems and combine them with the technology we have available," Moersdorf says.

One result of this is the company's new product -- called AIbadger-RFM -- for monitoring radio frequency devices at remote cell sites. This is one of the company's first products that monitor radio frequency. The company's previous line, AIbadger is marketed to wireless service providers' networks and improves network quality and availability.

"It monitors the towers, and if something is not right, the customer can get a truck out at the right time to fix it," says Moersdorf. "We come at issues from both angles. We find technology that is helpful for the customers and that they can use every day in their facilities."

And the company is introducing software for wireline customers that will increase network security.

"It features a firewall for security to central offices," says Keegan.

Climbing the hill

The trek toward restoring growth and profitability for the company is still an uphill climb. Sales for the the second quarter were a disappointing $5.7 million. But the company's focus on the wireless and international markets has been successful -- Keegan says sales in those sectors grew by 140 percent compared to a year ago. Domestic sales, however, remain slow.

"Our wireless and international sales were in line with expectations for the first half of 2004, but continued delays by our largest domestic wireline customers resulted in disappointing results for the first half of the year," says Keegan.

According to reports from the Telecommunications Industry Association, overall spending on voice and data communications equipment and network equipment has increased since 2003. In fact, the voice and data communications equipment segment was a $94 billion market in 2003, while network equipment spending is expected to reach $16.4 billion in 2005.

Part of Moersdorf's search for the right formula to take advantage of this industry growth includes a new vice president of sales. In October of this year, Angela Pinette was hired to replace Matthew Bruening. Pinette is the company's third vice president of sales since the restructuring in 2002.

Moersdorf and Keegan are counting on the experience of Pinette -- a former vice president of competing company ADC Corp. -- to bring sales back to former levels.

Moersdorf says putting together a top-notch management team to lead the company back to profitability hasn't been easy.

"I picked some great people that worked in various jobs throughout the country," he says. "They know the business inside and out. But it is hard to assemble a team like that here; it has been a big challenge. We're not a Texas Instruments."

And, Moersdorf says, assembling the team hasn't been his only challenge.

"After 22 years of doing the same things, it can be a challenge to keep excited about the business," he says.

To keep that spark alive, Moersdorf stays on the front line with his customers.

"I like to keep being involved and seeing new potential applications for our products," he says. "I enjoy being in front of new customers and helping them with something new they want to do."

How to reach: Applied Innovation Inc., (614) 798-2000 or www.appliedinnovation.com