Zoom Technologies: From Dial-up to Broadband

| About: Zoom Technologies, (ZOOM)

On February 5, The Wall Street Transcript interviewed Frank Manning, President and CEO of Zoom Technologies, Inc. (NASDAQ:ZOOM). Key excerpts follow:

TWST: We would like to begin with a brief historical sketch of Zoom Technologies and a picture of the things you are doing right now.

Mr. Manning:
Zoom was founded in 1977 in Boston. We started out in the communications area and had an early product that was very successful called the Demon Dialer, which was an advanced speed dialer. In 1983 we introduced our first modem, which at the time was a 300 bit per second modem for the Apple II computer. We kept growing in modems - initially through direct mail, and then later primarily through sales to high-volume retailers. We were able to get our sales up to $100 million a year. Unfortunately, that was the peak of our sales, because then our dialup modem sales started to drop as three things happened: computers started to come with dialup modems, dialup modems reached a speed limit, and broadband came on the scene. We have transitioned our products so that we now have a very broad line of products that still include dialup modems, but also include DSL modems, cable modems, wireless networking products, VoIP products and other communication products. Unfortunately, sales are now about $20 million a year; but we are starting to see some good sales momentum that we can talk about, and we feel that we are finally positioned to start growing again.

It has been a tough transition, because broadband modems have mainly been provided by the service providers, and that wasn't our main channel. However, we have done two things. We have managed to sell some of those service providers, both in the United States and internationally, and we have also started to enjoy some reasonably good broadband modem sales through retailers.

TWST: What are the main things that you expect to accomplish over the next couple of years?

Mr. Manning: We are trying to regain sales momentum primarily, and I think that we are starting to see that with some successes at some of the biggest retailers in the United States. For instance, Best Buy will be carrying Zoom DSL modems and cable modems, and that is very exciting because they are a great customer. We are already in Staples, CompUSA, Fry's and Micro Center with broadband, and we are also in the largest computer products retailer in the UK, which is the Dixons Store Group. Our broadband modems are also sold through many other retailers worldwide.

There is not a lot of room for cost-cutting anymore. We have already made a lot of tough moves there, so the emphasis has to be on trying to grow the business. The focus is on new products, providing value to our customers, exploiting the great marketing channels we have built, and trying to continue expanding those channels.

TWST: What would you reasonably expect the company to look like in about three years?

Mr. Manning: I think that we will still be a specialist in Internet access products, and what we found through three decades is that those keep evolving toward higher speeds. So you will see more high-speed Internet access products from us. I hope you will see VoIP become a more important revenue contributor for us. You will see us in more and more multimedia, including TV and audio-related devices, especially on the transport side where you need to get a TV signal from one point in your home to another point. I think that's a market that's really coming on strong and that we will have products in that area. Those are some of the main product directions.

TWST: What would be the two or three best reasons for the long-term investor to start taking a good look at Zoom?

Mr. Manning: I think that Zoom has shown that it knows how to sell its brands through certain channels like the high volume retailer, the small to medium-sized service provider and the computer product distributor. So if you believe that those channels are going to be important, we are a great company to back. Also, if you think that the products in the future are going to need great technology from a company that knows how to build them efficiently and support them efficiently, we're a good choice.

There is much focus these days on cost-cutting. You are seeing a lot of US companies move their customer support to places like India, and we haven't done that. We still pay a premium to support our products with US-based people. Why do we do that? Because we think that the customer needs to be happy when they buy our product. It's true that we can reduce support costs by going to India, but is that what's best for our customers? Our feeling is that it's not. Therefore, we need to keep spending that extra money to make sure the customer is happy. If you think that the world is going to want a company that provides true value but not the cheapest possible product, we are a good investment. We are trying to look at things from the customer point of view, and are trying to develop and support products to make the customer happy. Zoom won't forget that at the end of the day, it's the customer who ought to be king.

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