In the wake of disappointing financial results this year—most recently reflected in a poor third quarter—Tewksbury-based Avid Technology Inc. (NASDAQ: AVID) has announced the resignations of chairman/CEO William Miller and COO Clifford Jenks, and its intention to significantly restructure its business.
David Krall, who had most recently served as COO of Palo Alto, Calif.-based Digidesign, Avid’s professional audio business, has been appointed Avid president/COO. Krall joined Digidesign in May ’95 as director of program management and went on to serve as VP of engineering before he was named COO in May ’98. Krall will lead Avid’s restructuring effort and intends to develop a plan within 30 days.
An Avid spokesman said that Krall would not speak to the press until the restructuring plan is in place. The spokesman didn’t know if Krall would relocate from California to Avid’s Tewksbury headquarters.
A Digidesign spokesman said the company had not yet replaced Krall, and added that no further information about the company’s plans would be made available until an official announcement is made next month.
Meanwhile, Avid CFO William Flaherty has been named acting CEO for the company. Avid’s board of directors has initiated a search for a permanent CEO, whom it hopes to install within three months. Flaherty, who joined Avid as CFO in Sept. ’96, was unavailable for comment at press time.
In a released statement, Flaherty acknowledged that Avid’s "performance to date in 1999 has obviously been a disappointment. Our market realities have been changing rapidly, making our current business plan increasingly difficult to achieve. The board believes that a thorough restructuring is necessary to position the company for future growth and profitability." Flaherty said that the restructuring effort will center on channeling Avid’s strengths "into our strongest market opportunities with an infrastructure that supports a realistic and profitable business model as we enter the year 2000."
Avid is an international provider of digital video and audio tools to the film, television, commercial, corporate and interactive arenas. The company reported a $1.4 million loss in the latest quarter that ended Sept. 30 (excluding certain acquisition-related expenses), compared with a net income of $8 million in the same quarter last year. Third quarter ’99 revenues were $113.3 million, compared with $116.2 million in third quarter ’98.
In a press release on year-to-date financial performance, Flaherty offered a partial explanation for the poor bottom-line showing: "During the third quarter, we ran an aggressive promotion of ABVB [Avid Broadcast Video Board]-based Media Composers as part of our Macintosh initiative. This resulted in increased Mac-based Media Composer sales versus the prior two quarters, but it adversely impacted gross margin and was a principal contributor to the quarter’s operating loss. Our balance sheet remains strong. We continue to generate cash and ended the quarter with cash and investments of $83.1 million, up slightly from $82.5 million at June 30, 1999."
Back in July, Avid announced it was offering a number of initiatives for its Mac-based professional product lines, including reducing prices of new ABVB system purchases by as much as 50 percent for customers who remained on the ABVB platform. For instance, the cost of a Mac-based Media Composer 9000 ABVB system, normally priced at $98,000, was dropped to $49,000 for the period between July 21 to Sept. 15.
Avid said it offered such significant price reductions in order to demonstrate its commitment to Mac-based clientele, who feared that Avid was winding down Mac support and was instead heavily pushing the Windows NT platform. The Mac versus NT debate in the Avid community was further fueled this spring, when Avid announced the development of Media Composer 9000 XL for the NT platform only (SHOOT, 4/23/99, p. 1).
Tim McGuire, editor/principal at Chicago-based Cutters and president of the Midwest chapter of the Association of Independent Commercial Editors (AICE), opined that Avid has made some strategic errors with regard to its new technology and in considering its clients’ needs.
"I think they [Avid] felt they were probably strong enough to push this new technology, the NT platform, on us," said McGuire, "and I don’t think people bought into it. Editors are very loyal when it comes to vendors, equipment and Avid. These guys love Avid and the Macintosh platform, and the thought of that being taken away from them scared them."
Asked to comment about Avid’s management shakeup, McGuire—referring to Krall—said he wasn’t sure how much Digidesign understands about Avid, as the two divisions operate fairly autonomously. However, McGuire conjectured, "Maybe this whole new fresh approach will be good for Avid."
John Palestrini, CEO at New York-based The Blue Rock Editing Company and president of the national AICE, affirmed that Avid was pushing NT at the National Association of Broadcasters (NAB) convention this past April in Las Vegas. "Last week," related Palestrini, "we had an AICE meeting in New York, where [Avid] said they were kind of re-committed to Macintosh. It sounded to me like they were going to go with two platforms: still keep the option of Macintosh and, in the future, switch to NT. So it’s confusing, to say the least."
Although Palestrini acknowledged that that price decrease of the aforementioned Media Composer 9000 was "drastic," he said it seemed part of a normal cycle in the evolution of technology. He added, "After a few years of a product being out, it’s reduced in cost and is phased out, and then something new comes in."
Ultimately, Palestrini said, he finds it hard to fault Avid in light of the major innovations the company has contributed to the editing industry. He said he would deal with whatever platform Avid chooses, and noted the industry has already changed platforms several times: from the Moviola to the flatbed to Avid. "If the NT was going to allow us to do our jobs better and faster," said Palestrini, "then I guess we’d make the change. It’s the normal flow of technology; you can’t stop it."
For now, Palestrini said, he is taking a "wait-and-see" approach with regard to Avid’s new management and planned restructuring. "I have no reason to think one way or the other right now," he said. "I don’t have enough information about it."
In a released statement, Miller said of his resignation, "I am proud of what we have accomplished at Avid during the past several years, but the fact is that our plans to grow the business have not been successful. As Avid seeks to reshape itself for the future, it is appropriate that new leadership take on that task."
