Md. firm's 1st offering is 7th best in nation Yurie Systems joins Ciena in cash machine at end of phone line

February 16, 1997|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Jeong H. Kim built his company on an obscure technology called ATM. No, this ATM is not an automated teller machine. But it will let him make more trips to the bank than most people could ever imagine.

That's because the 36-year old former Navy submarine officer and Johns Hopkins-trained engineer took his 4-year-old company public Feb. 5 in the midst of an historic initial public offering boom. When he did, Yurie Systems Inc. of Lanham turned out to be one of the top initial public offerings of the young year. As of Friday, the company was valued at $378 million, making Kim's 60 percent stake worth about $230 million.

The Yurie deal was the 19th initial public offering of a Maryland company in two years, and was followed two days later by the more-publicized coming-out of Savage-based Ciena Corp., which raised $115 million by selling 5.4 percent of its stock. A week later, the Ciena stock zoomed 71 percent to an astounding $3.6 billion in market value.

Together the deals highlight the development of Maryland's information technology industries, long seen as lagging while most public attention and the highest-profile state money went into biotechnology.

'Unusual' for Maryland

"I thought it was unusual to have two such strong IPOs coming out of the state of Maryland," said Kathleen Smith, an analyst at Renaissance Capital Corp. in Greenwich, Conn., a boutique firm that follows the IPO market. "Generally, it's Silicon Valley."

Indeed, Ciena's offering is the top performer of the 74 U.S. initial public offerings this year, said Richard Peterson, an analyst at Securities Data Co. in Newark, N.J. Yurie's offering ranked seventh. The stocks are ranked by how much their stocks have risen since their offering. The two companies also employed 375 people as of last fall.

Both companies make telecommunications equipment and both rely critically on a single customer -- AT&T Corp. for Yurie and Sprint Corp. for Ciena.

Both also are barred from making most public statements for several weeks after their offerings, so they did not grant interviews for this story. But of the two, Yurie is the relative underdog.

Yurie was founded in 1992, a year before Kim left his job as a senior project engineer at Allied Signal Inc. Like all start-ups, it exists to fill a niche -- in this case, the art of moving high-speed data through a traditional, low-tech network of copper telephone wires.

The new-fangled way of moving data is called Asynchronous Transfer Mode, or ATM, which works by consolidating streams of information into data "cells."

ATM works great on modern fiber-optic phone lines, but when ATM is used with traditional copper lines, the low quality of the circuit creates electronic noise that wipes out part of the voice or data signals -- especially when circuits are as crowded as they are becoming with the explosion of the Internet and other new communication technologies.

For regular phone calls, that interference isn't necessarily a big deal -- a voice can be audible even if some of the electronic information expressing it is lost. But it's a very big deal when a phone call is moving data, which can become incomprehensible mush if the line is crackling with static.

That's the problem Yurie was created to solve, with products that let ATM calls be routed over low-quality, non-fiber-optic phone lines.

For a system like Yurie's, one would expect the biggest customers to be traditional phone carriers like AT&T, which have "legacy networks" blending old technology and new but whose customers want to be on the cutting edge. And one would be right: More than 90 percent of Yurie's sales in the first nine months of 1996 were to AT&T, which resold Yurie's equipment to government agencies, especially the Pentagon.

"We've funded the development of their technology," said Joyce Van Duzer, a spokeswoman for AT&T Government Markets, which has exclusive rights to sell Yurie products to federal customers.

AT&T has an obligation to buy $10 million of Yurie products annually this year and next, but ordered $9.4 million in 1996, when it was only obliged to buy $6.5 million worth.

AT&T didn't adopt Kim's company out of the goodness of its heart, or because it got a big block of Yurie's stock (it didn't). Instead, the long-distance giant had two big reasons.

Strong patents

First, it's a whole lot cheaper to buy machines like Yurie's and adapt a copper-based phone network to ATM, which can be hundreds of times faster than even the high-speed phone lines many corporations use to connect their offices to the Internet, than it is to build a new fiber-based network. So much cheaper, in fact, that AT&T paid prices equal to $1 for every 35 to 40 cents Yurie spent making the machines last year.

Second, Yurie had patents strong enough to keep AT&T from developing the same system itself, Van Duzer said.

"Obviously, we wouldn't have done it if they did not have something we feel strongly about, something that has a real future," Van Duzer said.

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