Radius Inc.

215 Moffett Park Drive
Sunnyvale, California 94809
U.S.A.
(408) 541-6100
Fax: (408) 541-6150

Public Company
Incorporated: 1986
Employees: 237
Sales: $308 million (1995)
Stock Exchanges: NASDAQ
SICs: 5054 Computers & Computer Peripheral Equipment & Software; 7373 Computer Integrated Systems Design

Radius Inc. designs, manufactures, services, and sells computer peripheral devices and various accessories that enhance power and graphics capabilities. Examples of products include video-editing systems and software, high-resolution video displays, high-quality color printers, and graphic accelerators that facilitate the creation and manipulation of graphic images. Since its start in 1986, Radius has achieved dramatic growth through product innovation and by purchasing other companies and technology.

A New Idea

The success of Radius Inc. was built on the success of Apple Computer Inc., the maker of the famous Apple and Macintosh personal computer systems. In fact, the company was founded by several former Apple employees, including Andy Hertzfield, Mike Boich, Alain Rossman, and William Carter. Heading up the effort was Burrell Smith, the lead designer at Apple who had helped design the electronics for the first Macintosh computer and the popular LaserWriter printer, among other credits. Eager to flee the corporate world and launch his own enterprise, Smith took a leave of absence from Apple in the mid-1980s and spent his leave designing a breakthrough Macintosh-compatible video display.

The advantage of Smith’s new display was that it offered full-page viewing, which contrasted with the much smaller display built into Macintosh units at the time. Smith decided to take a permanent leave of absence in 1986. By that time, he had let some of his associates in on his backroom project. Leaving with him was Andy Hertzfield, who had helped design the systems software for Apple’s vaunted Macintosh. Exiting Apple’s management ranks from the marketing side to help start Radius were Mike Boich, a Macintosh marketing wizard who had spurred Smith to launch the new venture, and Alain Ross-mann, one of Apple’s marketing and sales executives. Together, the team of former Apple managers launched Radius Inc., which was incorporated on May 19, 1986.

Success in the Late 1980s

At Radius, Smith and his cofounders sought to construct a culture that mimicked that of the early, entrepreneurial Apple Computer. “We tried to recreate what we really liked at Apple,” Rossmann recalled in Business Journal-San Jose. “We tried to achieve a very informal environment where people can create. We certainly pay as much attention as we can to treating people well. That’s what Steve [Jobs, Apple’s founder] used to do.…” Such a culture helped Radius, like Apple, grow rapidly. Starting with just a handful of employees, Radius quadrupled in size in its first year to a team of 30. In 1987 they moved Radius’ operations to a 35,000-square-foot facility to keep pace with growth.

The foundation of Radius’ growth during that first year was its hugely successful Radius Full Page Display. Designed as a peripheral device to accompany the popular small-screened Macintosh SE and other Macintosh systems, the monitor was a huge success. It was a gray-scale, high-resolution monitor, much like the one sold with the integrated Macintosh computer unit. But it was a full six inches larger than the Macintosh SE’s 13-inch screen, thus increasing the viewing area more than threefold. Furthermore, it was designed to accelerate the speed of the graphics process by 400 to 600 percent on different Macintosh systems. The screen initially sold for a list price of $1995. Radius sold the complementary accelerator, which sped up the graphics process, for $995. “The thing we try to do is turn the Macintosh into a graphics workstation,” Boich said in Business Journal-San Jose. “Our concentration is on high performance graphics systems.”

In 1987 the Radius monitor was voted by readers of Macworld as the most promising hardware product. They also voted it the best display device for a Macintosh by a margin of three-to-one. The high-performance monitor and accelerator allowed Radius to quickly snare a full 36 percent of the entire market for Macintosh graphics subsystems (peripheral monitors), with about 8,000 units shipped during Radius’ first full year of operation. The company’s sales shot up from almost nothing in 1986 to more than $7 million during its first full year of operation. In 1988, moreover, Radius’ revenues vaulted to nearly $33 million. Radius achieved profitability after its first nine months of operation, and would continue to post successive profit gains throughout the 1980s.

Radius managed to establish itself in the computer peripherals market quickly and with a low investment compared to many of its competitors. The company was originally funded privately, largely by its founders. But only nine months after its founding, venture capital investors—including Kleiner, Perkins, Caufield & Byers, InterWest Partners, and Associate Venture Investors—injected $3 million into the company in return for about 34-percent ownership. Radius kept costs low by having its units manufactured by contractors and purchasing its video displays overseas. It distributed the products through a dealer channel that, by mid-1989, reached 1,500 retail outlets in 17 countries. The displays and accelerators were originally purchased primarily by graphics and design departments of large corporations, although that market broadened in the 1990s.

Trouble in the Early 1990s

The success of Radius’ Macintosh peripherals allowed it to post impressive revenue increases, to $82 million in 1989 and then to $111 million in 1990. Meanwhile, net income grew to more than $6 million annually. Radius scrambled to expand its facilities and bolster its work force to more than 300 employees by 1990. Confident of future growth, Radius went public in August of 1990 with a stock offering at $10 per share. Unfortunately, that public offering signaled an end to Radius’ rapid rise and successive profitability. By the end of 1990, in fact, Radius’ stock price had plummeted by nearly 50 percent after the company announced its first quarterly loss.

Radius’ problems late in 1990 evidenced underlying weaknesses in the company’s overall strategy. Radius had profited during the late 1980s by chasing the largely untapped market for high-end Macintosh add-on monitors and graphics accelerators. By the early 1990s, Radius was relying on sales of Macintosh-related products for roughly 90 percent of its sales. Personal computer markets began to change in the late 1980s and early 1990s, though, and Radius failed to adapt. Importantly, Radius’ management didn’t recognize the importance of Apple Computer’s shift toward the low-priced segment of the hyper-competitive personal computer industry. When Macintosh introduced the highly successful, low-priced “Macintosh LC” model, Radius was caught off guard. Radius had to scramble to develop products that could work with the LC, as a large proportion of its sales was dependent on the Macintosh SE, which Apple discontinued in the wake of the LC’s success.

To make matters worse, Radius suffered several minor blows, such as the loss of a potentially lucrative contract to supply its products to the exclusive Apple federal government reseller. Furthermore, Apple Computer itself was struggling to retain market share and the personal computer industry had become fiercely price-competitive. Radius executives recognized the need to emphasize products for the IBM-compatible PC market, but had been slow to move. Critics at the time derided management for being arrogant and myopic, and for replaying the Apple Computer mistake of spending too much money on personnel and marketing. They argued that although Radius had achieved important innovations, such as the world’s first pivoting monitor that could operate in portrait or landscape mode, it had also missed some important opportunities. Regardless of the cause of its problems, Radius suffered a dive in net income to just $3.7 million in fiscal year 1991 from sales of $118 million.

Even before Radius posted its 1991 decline the company’s board had shaken up the management ranks. In March, Boich lost his titles of president and chief executive to Barry Folsom, although Boich retained his role of chairman. Folsom had held various marketing and development positions at Sun Microsystems Inc., Digital Equipment Corp., and Data General Corp. before moving to Radius. He was known as a scrappy, hard-charging executive. “I’m a can-do, make-it-happen kind of person,” Folsom declared in a 1991 Business Journal-San Jose article. Those prophetic words were followed by Folsom’s resignation just 17 months later.

Folsom did make progress at Radius. He reduced the company’s work force and lowered overhead, for example, and dispatched several key executives. Among other efforts, he worked to reduce infighting between the engineering and marketings factions of Radius. Folsom also oversaw the opening of a new Japanese subsidiary (Radius K.K.), and initiated a drive to more aggressively develop products for the giant IBM-compatible segment of the market. Furthermore, under his tutelage, Radius managed to boost sales to $160 million and nearly double annual profits in 1991. But critics feared that Radius was losing it direction under Folsom, and that the company lacked a clear strategy for long-term growth.

Perhaps more surprising than Folsom’s resignation was the reappointment of Boich as president and chief executive officer. “I learned a lot watching another person do the job,” Boich said in Business Journal-San Jose, “and I also learned that I could do a lot better job than I gave myself credit for.” In fact, Boich was grossly mistaken. Radius took an ugly dive after he recaptured the helm; sales slipped to $134 million in 1993 and the company posted an embarrassing net deficit of $18 million. That decline occurred as Radius’ core Macintosh product line languished in the face of increased competition and sluggish Macintosh sales.

A New Direction for the Mid-1990s

Before he could drive the company into the ground, Boich left Radius and was replaced in March of 1993 by Charles W.Berger. Berger had previously served as a vice-president at Apple and as president of Sun Microsystems, gaining experience in all facets of the computer business. He launched a number of initiatives at Radius, the most notable of which revolved around diversifying the company’s product line and developing and introducing new technology. Importantly, in 1994 Berger helped to engineer the buyout of Radius’ key competitor, SuperMac Technology Inc. The move reflected Radius’ goal of becoming the dominant player in the digital-video desktop PC market.

SuperMac brought an array of new products and technologies to Radius. Importantly, it promised to give Radius the leverage it needed to become a major player in the emerging desktop video-editing industry, which Berger believed would offer massive growth potential reminiscent of the switch from professional to desktop word processing in the 1980s. But SuperMac also burdened Radius with 500 new employees, a bloated inventory, and numerous overlapping departments and functions. Adding to the fray was Radius’ buyout of the much smaller VideoFusion, Inc., a leader in video desktop technology. Radius scurried to absorb SuperMac and VideoFusion during 1994 and 1995, and to prop up its existing lines of graphics peripherals, “Radius Rocket” accelerators, and other products.

As a result of the merger with Supermac and VideoFusion, Radius’ revenue base more than doubled to $324 million in 1994. But the company also recorded a net loss of about $77 million. The company’s financial health continued to suffer through 1995, when sales slipped to about $308 million and gross losses increased about two percent. Management remained optimistic, however, believing that the company’s move to dominate the video-editing/production/playback market and to concentrate on high-end digital video and graphics customers would pay off big in the long-term.

Late in 1995 and early in 1996, Radius sold off its color server and systems businesses, helping to reduce its payroll to less than 250 employees. Furthermore, management renewed its effort to divest mass-market and other low-value-added business. The company planned to use the cash from these sales to pursue markets related to high-end color publishing and video-editing and production, and to fund new projects. Most notable among Radius’ new projects in the mid-1990s was its System 100. Introduced in 1995, the System 100 was the first-ever Macintosh clone. The product signaled Radius’ jump into the market for complete, high-end PC systems. However, mediocre results from the effort persuaded Radius to sell the Macintosh clone division in January of 1996. Meanwhile, analysts were waiting to see if Radius could pull out of its downward spiral and regain profitability.

Principal Subsidiaries

Radius France S.A.; Radius S.A.R.L.; Radius K.K. (Japan); Nihon SuperMac K.K. (Japan); SuperMac Asia Pacific (Hong Kong); Radius UK Ltd. (United Kingdom); SuperMac Technology Europe; Radius GmbH (Germany); Radius FSC Inc. (Barbados); Radius Pty. Ltd. (Australia); Radius Canada.