The Cole Papers, SII, May 1998

Layout Windows style: The new Coyote Layout leverages the Windows interface with the existing capabilities of the SII pagination software.

After years in a downdraft, SII appears ready to soar -- maybe

SAN DIEGO -- Customers and supplier alike, there seemed to be a spring in everyone's step at the semi-annual System Integrators Systems Users Group meeting, held here April 5-8.

Following almost a decade of product misdirection, fiscal problems and management upheaval, System Integrators Inc. of Sacramento seems -- on its 25th anniversary -- to be heading out of the woods.

Likewise, the company's users no longer feel buffeted by SII's travails. "Users who attend these meetings never had the sense of gloom and doom that their publishers or editors had, because of their need to keep their systems running," said Michael Kinerk, news technology editor of the Miami Herald and users group president.

The doom and gloom can be traced back almost a decade, to SII's move from a private company to a public company traded on Wall Street. Within three years, the company went private again in a management-led leveraged buyout that saddled SII with more than $52 million in debt.

At the time, this seemed like a good idea: SII in the 1980s had been one of the top two suppliers of publishing systems in North America and a leader in other parts of the world as well. Customers ranged from the Los Angeles Times and Washington Post to the Financial Times of London and the Sydney Morning Herald in Australia. At one point the company had systems in more than 300 newspapers worldwide.

But adverse business conditions and a difficult move from a business and technical model that supported proprietary terminals (and their built-in huge profit margins) caused the company to spiral down. The low point was a September 1993 declaration of Chapter 11 bankruptcy.

After more than a year of financial reorganization, the company emerged with less debt, but a fuzzy product direction.

Engineers at SII in the late 1980s determined that the winning personal computer operating system would be OS/2, which at that time was being co-developed by Microsoft and IBM. Ultimately, Microsoft struck out on its own, developing the Windows operating system which gained complete dominance. IBM's OS/2 became nothing more than a footnote in the operating systems wars.

Unfortunately, SII had devoted thousands of hours in developing OS/2 terminal software and was reluctant to throw it away and start over on Windows. Further, the company's pagination efforts also ran on OS/2 (after initially being deployed on a proprietary operating system).

Customers were not interested in OS/2 solutions; sales deteriorated. To make matters worse, between 1989 and 1996, the company burned through six presidents.

But a series of moves by Chief Executive Frank Washington since his arrival at SII in July 1996 (see The Cole Papers, September 1996) seems to have stabilized the company and given it renewed vigor:

Closely working with the board of directors, Washington is within days of reaching an agreement to reduce the company's debt to a manageable $7 million.

Washington restructured the company to rely less upon employees and more upon third-party contractors. Many of the products introduced in the last year have been developed by former SII employees who are now out on their own, selling their expertise back to SII.

When Washington couldn't entice former employees to come back as contractors, they have come back as employees. There seems to be a cadre of people who left SII, worked elsewhere for a few years and have now returned.

He elected to end the relationship started by his predecessors with Cybergraphic Systems Ltd. of Melbourne, Australia. The plan had been that SII would sell Cybergraphic products in North America and Europe and would do only limited product development on its own. Neither side became comfortable with the other and they went their own ways last fall.

Washington jettisoned the OS/2 products, called MTX, and embraced a character-based terminal interface that ran on Windows called Coyote/3. From that decision has sprung a group of new products that have graphical user interfaces.

Changing the company
After a few months at the helm, Washington brought in his own management team. "The opportunity to get R&D building products again has been my focus since I came in around a year ago," said Ken Gregory, the executive vice president for operations.

Gregory, who has worked on projects with Washington in the past, said he pointed programmers at three projects: complete the Year 2000 software, develop migration tools for new servers and develop new client software.

Each of these projects had the benefit of bringing new revenues to the company through existing customers. But they also will influence new customers as well. Following the breakup of the relationship with Cybergraphic, Gregory said, "we had to demonstrate that we are going to build product and I think we've done that with the Coyote clients."

New business is a tough question at SII right now. Gregory and other executives acknowledge that the company has been concentrating on providing existing customers with add-ons and improvements, but new-system sales are picking up with a couple of recent deals -- a classified system to Gannett's 44,000-circulation Desert Sun in Palm Springs, Calif., and an editorial system to the Reuters news agency to provide more than 1000 terminals worldwide.

SII is still working on developing a plan for selling new systems. "We have to get our product strategy and direction together because that's the story we need to tell new customers," Gregory said.

Another new key executive, Chief Financial Officer Steve Orlando, said the company has had to rethink its priorities between customers, management, employees and owners.

"One of the other things the current management team has done is to align the interests of the various groups," Orlando said, "because any time one of those groups get ahead of the others, there's problems."

Orlando, an experienced Sacramento financial executive, further said the company projects its 1998 income to be in excess of $35 million and that after the restructured debt, money will be pointed toward growth.

"We absolutely plan and intend in investing in the future of the company," Orlando said.

In the last year, Washington and his team have added 22 positions worldwide, bringing SII's head count to 166, with 145 employees in Sacramento.

No stopping Tandem
A big piece of SII's success in the '80s was its use of computers from Tandem Computers Inc. of Cupertino, Calif.

Specializing in high-volume on-line transactions in a fault-tolerant environment, Tandem machines are prevalent in the banking industry and have been used by other newspaper suppliers -- Raytheon used the platform for its RayEdit system, which was used only at the Washington Post, and CText installed Tandem equipment at its Chicago Tribune site -- but only System Integrators has put hundreds of Tandem machines into newspapers.

Picking Tandem as its minicomputer supplier in the late '70s, SII has stuck by Tandem -- and Tandem by SII -- ever since. This occurred despite the fact that Tandem was one of the big losers in the Chapter 11 reorganization; the computer maker lost its equity investment in the company (more than 10 percent) as well as its seat on the SII board of directors.

Times have been tough in the last five years for Tandem, as computer buyers have looked to move from minicomputers to client/server environments. The one thing that has kept customers from all industries coming back to Tandem is NonStop.

The key attribute of Tandem machines is that they are fault-tolerant -- that is, they never crash. Actually, pieces of the system do stop, but the architecture is designed so that when a component fails, the system slows down but doesn't fail outright.

The fault tolerance of Tandem's systems was attractive enough to Compaq Computer Corp. of Houston, Texas, that it acquired Tandem last summer and has made it a subsidiary. Compaq hopes that Tandem's engineers will develop a fault-tolerant version of the machine that will run Microsoft's Windows NT operating system.

Apparently, SII planners are also expecting a Windows NT version of a Tandem system to sell customers in the near future.

In the meantime, the company has introduced Tandem's newest product -- ServerNet -- to the user community. A new design for Tandem, ServerNet is almost six times as fast as the previous Tandem machine, the K1000. At its first installed site, the San Jose Mercury News, reports are positive.

"It just doesn't slow down," said Tim Benjamin, the paper's publishing systems manager. A longtime SII customer, the Mercury News installed a ServerNet machine earlier this year for its 200-seat classified system.

New products
The invigorated SII has cut its losses with its OS/2 client products and has begun to move toward Windows technologies:

Coyote X clients: Leveraging the work done for the Coyote/3 product, which finally allowed a Windows-based computer to run the Coyote text applications without an additional hardware card, the editorial and advertising applications at last get a good graphical user interface.

Coyote/3 brought the traditional SII character-based interface to the PC in software. The application programming interfaces for Coyote/3 have been used to extend the interface into the graphical world.

The products -- dubbed "XE" for editorial and "XA" for classified -- follow Microsoft's standards for Windows applications and are built in Visual Basic. They rely on third-party ActiveX controls, which are small tools sold to the entire Windows programming community.

They also support an existing customer's investment in site-specific customization, including forms, lists and the macro programming language called Gloss. Though the company is encouraging customers to migrate to Visual Basic as a macro environment, Gloss interfaces with the XE and XA products. For Gloss macros that require the character-based interface, a window can be opened to run the "classic" Coyote/3 interface.

WebRunner: Bringing SII text-editing ability to the Internet, the WebRunner products provide a web browser interface to the SII system.

In between lies a Gateway Server, which interfaces the SII front-end with the Internet. The gateway receives a request from the browser, translates the request into a query for the SII system to process, retrieves the response from SII and passes it back to the browser on the Internet.

This Gateway Server is written in the Java programming language, giving it portability -- the company says the server can run either on a Windows NT machine or a UNIX platform. It uses a standard programming interface that has SGML syntax.

Small Java applications also run in the browser itself, giving the product sufficient interactivity to make it an acceptable way to enter classified advertising or allow stringers or free-lance journalists to enter stories.

The company is providing customers with the Java source code so that they can customize the product to their own needs.

Coyote Layout: The latest incarnation of SII's pagination product, Coyote Layout relies upon the Coyote/3 interfaces the same way the XE and XA products do.

The product brings the Windows NT interface to page makeup, but it still uses the same principles as its predecessor, MTX Layout.

Based on SII's Styl programming language for composition, the Layout products have long been believed by many in the industry to be "clunky" and don't have the elegance of the de facto standard: Quark XPress. But, as a production tool, Layout has been beneficial to a large number of SII customers and the new interface will be welcomed by them.

The move to Windows gives Coyote Layout users access to the real screen fonts being used (MTX Layout and its predecessors all used generic fonts on the computer screen), as well as the full Windows interface.

SCOOP II: An open pre-press interface (OPI) system for handling the merging of high-resolution graphics and pages, the second iteration of SII's output management system has made a number of advances.

The system now supports more file formats and is fully Year 2000 compatible. Further, it comes bundled with Adobe Acrobat for creating PDF files (see story on Page 4) as well as having improved router queue management, allowing for simultaneous output to not only local raster image processors (RIPs), but also remote RIPs and the Acrobat Distiller queue.

What's it all mean?
Despite the upbeat tone of the users group meeting, System Integrators will have a tough time in the next few years:

Its biggest customers are not turning to SII for pagination solutions. The Arizona Republic in Phoenix is using CCI Europe for pagination (see The Cole Papers, May 1997), as is the San Jose Mercury News and the Toronto Star; the Washington Post is installing a CCI system. The Daily Oklahoman threw out its entire SII system -- which included pagination -- for a solution from Harris Publishing Systems Corp.

It's doubtful that a Windows user interface on the pagination product will change minds at many papers.

Sales to new customers have been limited in the last few years, and it will be difficult for SII to build momentum in that arena.

Much of the current profitability at SII stems from Year 2000 software income. We suspect that sometime shortly after Jan. 1, 2000, that income will go away (as anyone who hasn't purchased a solution by then probably won't be a customer). Can the new products sustain the company?

Though $7 million in debt is better than $52 million, debt is debt and the company will have to pay it down.

None of these items spells disaster for the company, but a misstep in one or two areas, and System Integrators might not celebrate a 30th anniversary.

-- dmc

System Integrators, Inc., (916) 929-9481.

After years in a downdraft, SII appears ready to soar -- maybe

From THE COLE PAPERS, May 1998, Copyright © 1998, All Rights Reserved.