Ross CEO resigns as firm seeks to regain ground

Electronic News, March 10, 1997 by Andrew MacLellan

Austin, Texas--Roger D. Ross, chairman and president/CEO of multiprocessor designer-turned-system vendor Ross Technology, has resigned, amid ongoing moves by the company to reverse heavy losses and revamp its sales group, with the firm now reportedly trying to collar a chief executive with broader management experience.

The company's resolve has been severely tested during a year-long foray into the systems arena which has included layoffs (EN, Nov. 18 and Dec. 11, 1996), the exodus of key executives--including Ross CFO David A. Zeleniak--and a $37 million writedown of comparatively slower Sparc RISC CPUs and associated chips.

Upon resigning March 3, Mr. Ross, who with six associates founded Ross Technology in 1988, was succeeded as chairman by Fred T. May. A company director since 1991, Mr. May will serve as acting president/CEO until a permanent replacement is found. Mr. Ross will remain on the board of directors. He was not available for comment.

Those close to the company suggest Mr. Ross, widely respected as a microprocessor architect, may not have the management expertise to execute the company's increasingly diverse business plan, which now includes sales of HyperSparc RISC CPUs, ASICs, motherboards, and two desktop computer systems: the HyperStation 30 and entry-level HyperStation 20.

The introduction of a third platform, a HyperSparc/x86 hybrid known as SparcPlug, was delayed for several weeks on word of Mr. Ross' departure, as were the rollouts of several HyperSparc upgrades, Electronic News has learned.

Ross is currently developing a Colorado 5 HyperSparc CPU as well as a next-generation, 64-bit microprocessor code named Viper which it expects to introduce in 1999. However, to see it through, the company said it needs an immediate credit facility to be supported by a loan guaranty from parent company Fujitsu. In 3Q97, Fujitsu established a $25 million credit facility with an unnamed major international bank to aid in Ross' systems operations. Ross expects it will need an additional $35 million over the next 12 months, $26 million of that by the end of the fiscal year April 1. A As chairman, Mr. May said Ross Technology's first order of business will be to improve its sales force and evolve from a technical into a marketing driven organization. "When a company reaches a certain size, classically there comes a time when every company has to change its management," he said, adding that Ross' "strategy will not change, it will be the implementation of that strategy that will be different."

John Rasco, Ross director of marketing, said recent price cuts and new systems introductions by Sun forced Ross to react to the market more quickly than it was prepared to and caught the sales force flat-footed.

"We have had ineffective sales management," said Mr. Rasco. "Roger brought in a friend of his as VP of sales, who did a reasonable job building growth. But he did not do such a good job when it came to things like credit risk and contractual obligations such as right of return and stock rotation. Those were things that hurt the company, but we have gotten past a lot of that."

Despite Mr. May's assurances that the shakeup was a matter of course, forecasters and sources close to the company suggest Ross Technology faces an uncertain future. "I think they're in significant trouble," said one researcher. "I wouldn't be surprised to see them fold up pretty soon."

Vertical Challenge

The transition to a vertically integrated system vendor has proven a challenge in the making. Ross has had difficulty gaining ground against Sun's high-performance UltraSparc systems even with claims of better performance. What's more, analysts note, Sun's shift to a 64-bit multiprocessing architecture is starting to dry up sales within Ross' core HyperSparc business.

"Sales of the HyperSparc started to slow down, and they (Ross) needed to do something different," said Tom Copeland, director of workstation research for International Data Corp., Framingham, Mass. "They decided on workstations, but I don't think the gamble paid off.

"Sun has not been a performance leader for years, yet people are comfortable working with them. Every year, someone predicts the demise of Sun, but every year they grow. They have a good installed base and a loyal following."

Ross' stock, with a 52-week high of $15 1/8, was trading at press time Friday at $2 7/8. One source close to the company noted that, despite outperforming industry expectations for the first three quarters as a public company, Ross' stock has been constantly buffeted by analysts who view Sun's decision to move to a 64-bit system architecture as a sign the 32-bit market is dying.

Ross' net sales for the quarter ended Dec. 30, 1996, were $19.4 million, down 24 percent from the $25.5 million reported in the year ago quarter. Latest quarterly results showed a loss of $35.2 million as Ross wrote-down $37 million in older HyperSparc chips on a 51 percent decline in sales to its primary OEMs, and the failure of its new 180- and 200MHz Colorado 4 HyperSparc CPUs to land a major design win. Since that time, according to Mr. Rasco, Ross has signed a deal with Fujitsu and is now shipping 200MHz chips in volume.