In an unusual form of alliance, modem maker Hayes Microcomputer will buy its competitor Cardinal Technologies - including the 75 percent stake now owned by Paul Allen's Vulcan Ventures. Vulcan will then buy an undisclosed stake in Hayes.
The companies didn't disclose the value of the Cardinal purchase, but Cardinal's US$57 million in annual sales is about a fourth of Hayes'. As part of the acquisition, Hayes plans to shut down Cardinal's Lancaster, Pennsylvania, factory and move its operations to its Norcross, Georgia facilities.
In a statement, Hayes said it plans to explore other business opportunities with companies within the Paul Allen Group of companies, but declined to elaborate. Allen, the co-founder of Microsoft, also has investments in Starwave, Asymetrix, CNET, Interval Research Corp., and DreamWorks SKG.
The move could give new vigor to Hayes, which has lapsed from its onetime status as the kingmaker of standards in the modem world. Currently, US Robotics and Rockwell International are battling for their respective but incompatible technologies to become the standard for 56-Kbyte modems, which are expected to displace the 28-Kbyte variety in wide use today.
With the purchase of Cardinal, Hayes - which has seen its consumer market share drop from 50 percent in 1985 to 9 percent in 1996 - may once again have a say in which 56-Kbyte technology ultimately wins.
Hayes is a strategic supporter of the Rockwell technology and member of the Open 56K Forum, which is lobbying for the K56-flex to be adopted as the industry standard. But Cardinal supports the US Robotics X2.
Now, Hayes will ship 56-Kbyte modems based on both the US Robotics X2 and Rockwell K56-flex technologies. "Hayes is trying to straddle the fence and play into both camps as a way to garner greater revenues," said John Aronsohn of The Yankee Group.
At the same time, Hayes will continue to support the Rockwell standard even as it ships the X2 modems it has inherited. The two technologies are not compatible and the first to gain widespread usage is likely to become the de facto standard.
US Robotics, which previously presented its technology to the International Telecommunications Union to become the international standard, began shipping X2 modems several weeks ago, while Rockwell has lagged behind.
"USR was first to market and seems to be doing a better job on the marketing side," said Charles T. Smith, vice president of the Internet Service Providers Consortium. Smith called the USR "the best-of-breed modem maker these days." USR is the leading US modem maker, with about 26 percent of the market.
