PairGain Technologies

» see pairgain.com as it lived, on the wayback machine

~ the obit ~

PairGain sold to telephone companies, which means almost nobody ever chose to buy one. Howard S. Flagg and Benedict A. Itri founded it in 1988 in Tustin, California, and its product was called HiGain. The problem it solved was unglamorous and very large: a telephone company that wanted to sell a customer a T1 line had to either lay something new or condition the copper it already had, and HiGain let it push 1.544 megabits down two ordinary copper pairs instead. Every small office that got a leased line in the 1990s sat at the end of something like this.

The revenue tells the story better than any description of the product. Reading from the company's own annual report, in millions of dollars: 59.5 in 1994, then 107.2, then 205.5, then 282.3, and then 283.1 in 1998. The first two steps are near-doublings. The last one is a wall. On 31 December 1998 it employed 692 people, and the breakdown is the interesting part, because 259 of them were in engineering against 235 in manufacturing. So: a design house with a factory bolted onto it.

Turkey got its DSL from the other end of the same technology family and about a decade later, as a consumer product with a monthly bill from TTNet rather than a carrier component with a part number. HDSL was never something you could want. It was something your office either had behind the wall or did not, and the people who sold it were negotiating with purchasing departments at phone companies, not with anybody who would recognize the name.

~ the rap sheet ~

~ the price it set for itself ~

The clearest sentence about why this company died is one it wrote about itself, in the risk factors of its 1998 annual report, under a heading in capital letters saying it would continue to reduce its own prices. It had started cutting HiGain prices in mid-1993 to build demand ahead of competition that had not arrived yet. The cuts then ran 17 percent in 1996 and 30 percent the year after. In 1998 the company took 42 percent off the price of its main product.

Underneath that, HiGain was shrinking as a share of what the company sold: 76 percent of revenue in 1996, down to 59 percent by 1998. Both numbers moving at once is what produces a flat top line. The company was selling more units of a product worth steadily less, and filling the gap with other lines, and it said so in a document written for regulators, where nobody hunting for a story would go looking.

~ the fake page ~

On 7 April 1999 a message appeared on a Yahoo board under an assumed name, reporting that PairGain was being bought by an Israeli company, with a link to what looked like a Bloomberg News story. The story did not exist. It had been built by Gary Dale Hoke Jr. of Raleigh, North Carolina, who worked for PairGain. The stock went up roughly a third before the company denied it.

The Securities and Exchange Commission filed its complaint on 21 April 1999. By 30 August that year Hoke had consented to a permanent injunction without admitting or denying anything, and the Commission waived a civil penalty because he could not pay one. Accounts of what happened to him in the criminal courts conflict with each other, and none of them held up against the filings, so they are left out here.

~ what the box actually did ~

ADC Telecommunications completed the acquisition on 28 June 2000. The terms were 0.86 of an ADC share for each PairGain share, 63.8 million shares in total, accounted for as a pooling of interests, which is a structure that moves no money. There is no purchase price in the filing because there was no purchase price, only two share counts.

The PairGain and HiGain names went to ADC DSL Systems and stayed on manuals for years afterwards. Equipment brands end this way as a rule. Nobody retires them, they simply stop appearing on anything new. The thing worth keeping is not the hoax. It is that a company can describe the mechanism of its own ending in its own annual report, in plain language, two years before the ending arrives, and have every reader file it under risk factors and move on.

@}-->--

              )
             (_)
            .-'-.
            |   |
            |   |
            |   |
            |   |
          __|   |__   .-.
       .-'  |   |  `-:   :
      :     `---'     :-'
       `-._       _.-'
           '""""""

« previous  ·  random  ·  next »