Com21 Fails Certification Test... Again (News) September 2, 1999

Com21 Fails Certification Test... Again

By Dave Marino-Nachison (TMF Braden)
September 2, 1999

Investors in cable modem supplier Com21 Inc. (Nasdaq: CMTO) must be wondering what cable system operator organization CableLabs has against them.

In late June, Com21 shares fell about 20% in one day after its DOXport cable modem didn't get CableLabs' certification, generally considered the industry's seal of approval.

But the product was already out. President and CEO Peter Fenner said not to worry: any necessary changes to the modems would be available via software download and the company would simply reapply and go through the tests again in a few months.

So it did, and optimistic investors pushed the stock back up a bit.

Today, Com21 stock fell nearly 30% as the new CableLabs pledge class came out -- with Com21 left off the list after having not passed "certain software-related tests."

Adding insult to injury, broadband cable modem systems maker Terayon Communication Systems (Nasdaq: TERN) today said one of its modems earned the coveted data over cable system interface specification (DOCSIS) certification on its first try. Terayon stock rose more than 10%.

So where Fenner seemed borderline flip this summer, this time around he was downright repentant, repeating over and over how seriously Com21 now takes the certification process.

"Obviously, this is the most disappointing thing I've had happen to me in my whole business career," Fenner said in a conference call today. The company failed on two points of a complex test, he said, although neither of the modem's problems hurt their interoperability with other modems.

"These both have very simple workarounds by the operator," said Fenner, "and they do not affect the operation of other DOCSIS modems that might be on the system at the same time. We had hoped that that would result in CableLabs' certification board ruling that our modems were OK."

"Complexity is not an excuse," continued Fenner, noting the test's thick manual and stringent requirements. "It's at the very core, in fact, of what we do... We do have a very good product. Interoperability testing is not a yardstick of performance... but it is a necessary hurdle for Com21 to achieve our target DOCSIS sales."

In the short-term, the company believes the news won't victimize results. Fenner said current customers haven't been complaining, although he admitted that some potential buyers "will not buy without certification. They want to keep the certification process very stringent so nobody gets the idea that the whole interoperability process is not important."

And CFO Dave Robertson said sales of the company's asynchronous transfer mode-based cable modem products are showing sales "higher than planned" domestically and overseas and appear likely to offset any slowdown in DOCSIS-related revenues. Robertson believes Com21 is "on track" to meet third-quarter estimates but held off on making any projections about Q4.

Fenner pointed out structural changes, including the naming of Engineering Director Paul Gordon to the position of executive vice president, with certification his main priority. Fenner also announced plans to work more closely with CableLabs, possibly having one of their engineers work directly with the certification group on test cases.

In explaining these new ideas, Fenner seemingly admitted to past ignorance of the importance, stringency, and nature of the test process. However, that's not necessarily bad if he's serious about putting those issues to rest the next time around.

"We're going to do everything we can," said Fenner, "to make sure this call isn't going to be repeated in November."

Related Links:
Com21 Message Board
Cable Labs

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