Remarks from Zoom CEO, Frank Manning, at today's shareholder meeting
Remarks by Zoom Telephonics’ President and CEO Frank Manning at Zoom’s
July 15, 2010 Annual Meeting
First of all, I want to thank Zoom shareholders for their support through some very
challenging times.
I also want to spend a little time summarizing some Zoom history. After that I’ll talk
about some accomplishments and plans that will impact our future.
As some of you know, Zoom started in 1977 and introduced its first modem in 1983. We
were able to grow to a profitable $100 million company in the late nineties due to dial-up
modems sold primarily through major retailers. As broadband emerged, our sales declined. We
introduced excellent broadband products, but suffered from the dominance of broadband
equipment by service providers who typically bundled a broadband modem with their service.
These giant companies dominate modem purchases today, and it’s very challenging to sell to
them at a profit. It’s also difficult to counter their established relationships with certain
companies, in some cases companies that they partially own.
In spite of this, Zoom has been able to successfully sell some broadband modems with
major retailers including Best Buy, Staples, Fry’s, and Micro Center; and we also enjoy good
sales through US and non-US distributors. We also sell to smaller telephone companies and
Internet Service Providers both inside and outside the USA. And of course we continue to sell
dial-up modems, and we are benefitting from the increased market share enjoyed by retailers as
fewer and fewer computers ship with a dial-up modem.
Until recently our sales have generally declined in recent years, and we have lost money
in spite of severe cost cutting. Cost-cutting measures have included all of the following and
more: dramatically reducing our staff, freezing salaries for many years, moving Zoom’s
test/package/ship facility from Boston to Tijuana, moving our customer support office from
Florida to Boston, and down-sizing Zoom’s Boston and UK space.
Interestingly, some of our investments have been important in providing cash to fund
operations – namely, investments in our Boston headquarters building and Intermute. Our
headquarters building initially cost a little over $800 thousand. After deducting the cost of
improvements, sale of that building earned a gain of over $5 million. Our investment in
Intermute initially cost $467K, and that investment earned a gain of over $4 million.
Generally our stock has declined from its highs over a decade ago. However, we were
able to grow the value of $1 thousand in Zoom Technologies stock at the beginning of 2009 to
over $14 thousand in Zoom Technologies and Zoom Telephonics stock at the end of 2009, due
primarily to a merger/spinoff transaction. Now Zoom Telephonics is an OTCBB listed
company, with symbol ZMTP; and Zoom Telephonics is independent of Nasdaq-listed Zoom
Technologies.
In summary, we’ve done a lot to try to weather the major storm we’ve experienced in our
modem business. But what are we planning to do going forward?
Our break-even point has come down a lot due to cost-cutting. It’s become very difficult
to cut costs further while staying in business, so we need to find a way to grow our sales. There
is no guarantee that we can do that, but here are some reasons for hope:
1) As more and more people have moved to broadband, fewer computers ship with a built-in
dial-up modem. Some people still want dial-up modems, and a higher share of the dialup
modem business is now coming from retail, Zoom’s strength.
2) Zoom recently began shipping one of our dial-up modem products to Wal-Mart. This is
exciting, but it’s too early to predict the revenue impact.
3) After achieving CableLabs, Comcast, and Cox certifications, Zoom recently began
shipping a new Docsis 3.0 cable modem to Best Buy and Staples. This should result in
significant sales.
4) We plan to offer our Docsis 3.0 cable modem to service providers in the US and
elsewhere. Again, it’s hard to predict the sales impact. The good news is that there aren’t
many cable modem competitors. The bad news is that one is Motorola, a tough
competitor; and it’s also unclear how much some of the smaller cable service providers
will embrace Docsis 3.0.
5) We have almost finished a complete turnover in our ADSL product line, lowering our
costs and changing our ADSL modem chip supplier to industry leader Broadcom. We
believe that this will help us to improve our ADSL revenues and margins, and that ADSL
should be a more important quarterly margin contributor.
6) We are enjoying reasonable sales with WiFi routers and adapters; and soon we will be
introducing 2 new products in this area, a wireless-N router and a thumbnail sized
wireless-N USB adapter.
7) We have now been shipping 3G modems and routers for almost a year. Sales are
reasonable and growing, with some good steady customers. We hope that mobile
broadband will be an important growth area for Zoom, and will continue to introduce
new products in this area.
8) Our ZDTV wireless keyboard for HDTV represents a lot of Zoom technology focused on
an exciting area, bringing all the Internet to HDTV. Sales are still modest, which is not
surprising for a product that needs to create a new market. We believe we are wellpositioned
with ZDTV, and that this is a good opportunity.
These are some reasons that we may be able to return to profitability. We find them
encouraging, but there’s no guarantee of success.
I also want to mention a couple factors that are important but hard to predict.
1) Will the FCC change the rules relating to certification of cable modems, ADSL modems,
and 3G modems, improving the prospects for these modems at retail? This would help
Zoom and our US retailers a lot, but we don’t know what the FCC will do.
2) The US government is spending money to help bring broadband to rural areas. Will this
increase Zoom’s sales of broadband modems? How significantly will it decrease our sale
of dial-up modems in years to come?
3) Europe is exploring anti-dumping charges aimed at certain Chinese companies’ sale of 3G
modems. Will this help to thwart the cost aggression of Huawei, for instance? And will
anti-dumping charges be pressed against them in other markets including the USA?
It’s also important to note that Zoom will probably want or need to raise cash to continue
operations, especially if we try to fund growth.
We also want to remind our investors that Zoom has valuable assets that are not shown
on the balance sheet, including our Zoom, Hayes, and Global Village trademarks; our Zoom and
Global Village Web sites, a big tax loss carry-forward, and our patent portfolio. Most important
of all, we have a great team of people working hard to make Zoom a success.
We appreciate our investors’ support.
