March 25, 1997 6:30 PM ET
Modem makers getting hit by the 56K blues
By Margaret Kane

  The arrival of 56K-bps technology is causing modem makers all kinds of unexpected grief.

Lured by the promise of faster online connections, consumers are showing interest in the newer modems at the expense of more standard--albeit slower--products. And that, say some industry executives, could wind up hurting the results of some modem manufacturers in the March quarter.

Hayes Microcomputer Products Inc. CEO Joe Formichelli yesterday told PC Week that modem sales were suffering because dealers were postponing plans to stock up on inventory until the newer 56K-bps modems became available. Hayes also uses Rockwell chip sets in some of its modems.

"The quarter is not what I wanted it to be," Formichelli said.

That's not the only potential problem. Zoom Telephonics CEO Frank Manning said today that Rockwell Semiconductor Systems Inc.'s delay in shipping 56K-bps chip sets could hurt his company's sales in the March quarter. The components supplier two weeks ago warned that it needed time to fix software glitches in its firmware.

"This is not some disaster story," Manning said in an interview. "But if the question is, 'Is there some serious money involved in terms of revenue?' the answer is yes."

Manning said Zoom expects to ship 56K-bps modems by the end of the current quarter or early in the next quarter. He declined to get more specific about the company's financial performance.

"There's a lot of demand and we have a lot of boards in position to ship once the firmware is in a position to sell it," he said.

Zoom and other modem makers may not have to wait much longer. Rockwell says it plans to ship the chip sets this week. At that point, analysts say modem vendors will be forced to rapidly bring their 56K-bps products to market in order to stay even with U.S. Robotics Corp.

"There's a major time-to-market advantage," said Lisa Pelgrim, an analyst at research firm Dataquest Inc., in San Jose, Calif.

Pelgrim also warned that with 56K-bps technology attracting so much attention, modem companies that are late to market with cutting-edge products could wind up getting stuck with unsold inventories of slower modems.

"Modem companies have to, have to, have to pay attention to inventory levels on non-56K products so they don't get stuck with inventory that they can't move," she said.

But despite all the commotion in the modem industry, a few retailers said consumers are still wary about the switch to higher-speed modems.

"There has been some increase in demand, but most online services aren't supporting [56K bps] at the present time," said Eric Hall, store and sales manager at PC Warehouse, in Waltham, Mass.

"A lot of people are still on a wait-and-see-type basis," Hall said.

Corporate customers are also surveying the situation before they jump in, said Eric Walton, vice president of product management at Entex Information Services.

"Corporate standards aren't always that fast to change," Walton said. His company continues to sell large numbers of 33.6K-bps modems, he said.

"We will stock based on customer requirements and needs. We're not overstocking, though, that's for sure," he said. "Obviously, this will be a short window. I used to think it would be real short, but that seems to be changing."

The arrival of 56K-bps modem technology is also posing other problems for modem makers. On the one hand, they want to get the new systems out to customers as soon as possible. But there remain unresolved questions about compatibility between Rockwell and Lucent Technologies' K56Flex standard and U.S. Robotics' competing x2 technology.

U.S. Robotics was the first modem maker to bring 56K-bps technology into the market when it began shipping its x2 modems earlier this month. However, the company's modems are not compatible at higher speeds with modems using Rockwell's K56Flex modem technology.

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