Santa Clara’s NComputing is for sale and in deep financial trouble
SANTA CLARA — As startups fill every corner of vacant real estate and tech giants post record sales, one little-known empire here is crumbling in the midst of the biggest tech boom in 15 years.
NComputing, the third-largest company of its kind in the world, is for sale. The Santa Clara firm, which sells devices and software that connect desktop computers to a single PC or server, and just two years ago was called the fastest-growing company in its industry, is in the process of being acquired — most likely its only hope, aside from bankruptcy, of digging out from a financial catastrophe, according to company executives and former employees laid off last winter.
“The company is in the process of being sold,” said co-founder and Chief Executive Young Song. “I am working hard to keep our technology alive. … The show must go on.”
The upheaval at NComputing, a startling contrast to the tech boom that has propelled startups to stratospheric valuations, filled venture capital coffers to record levels and driven employers to offer lavish benefits in the most cutthroat competition for employees since the peak of the dot-com era, is a reminder that even in the best of times, not all companies are invincible. As Uber expands into Asia and startups such as New Relic and Pinterest open global offices, NComputing is conceding its position as a world leader.
Its failure to keep pace with a changing tech landscape — it was slow to update old products, create products that better integrate with other popular technology or offer more mobile and cloud computing options that businesses want — is finally catching up with the 12-year-old company, according to analysts and company employees. It’s a story that resonates in Silicon Valley, as companies either innovate or are left behind.
“They aren’t the first technology mover or early adopter of new technology,” said Agatha Poon, a research manager with 451 Research.
Added Simon Bramfitt, an analyst with Entelechy Associates who has studied the company: “I guess they are not evolving fast enough to keep up.”
Exactly what technology — and how many employees — will be part of the NComputing sale remains to be seen. Song, who responded to an inquiry from this newspaper via Facebook, declined an interview, citing the sensitivity of the potential sale. But he expects the acquisition to be completed by the end of February.
The acquisition would probably be the second-largest deal in the so-called client-device industry, which describes companies that make software and hardware that allow several computers to run off the power of a single operating system, a common setup in schools and small businesses because it reduces costs and uses less energy.
While not a household name, NComputing was for years an established powerhouse, its technology found everywhere from schools in Dublin to biotech labs in Uruguay and hospitals in Florida. It counts more than 70,000 customers in 140 countries.
“It’s kind of a remarkable story because NComputing was still independent and was doing quite well,” said one former NComputing director who was laid off last year. Several current and former NComputing employees spoke to this newspaper on the condition of anonymity. “We have a pretty loyal following. Where we are now, it didn’t have to come to this.”
Where they are now is a dark place, burdened by persistent calls from creditors and bills that may never be paid, the director said. Vendors hired by NComputing told this newspaper the company owes them tens of thousands of dollars, and they weren’t sure when — or if — they would get paid.
NComputing had two rounds of layoffs last year, the first in November and the second just before Christmas, which included several executives and chiseled close to two dozen employees from the company’s workforce of 130, according to those who had been fired.
Last quarter, according to a former employee, sales were 25 percent short of expectation. Because the company is private, financial information available to the public is very limited.
The layoffs began after Song returned in October to replace CEO Raj Dhingra, who led the company from 2011 to 2014.
“I came back to my founded company to revive it,” Song wrote in his message to this newspaper. “Sometimes, we have to reduce the workforce to optimize our survival and success.”
NComputing’s undoing is the result of lackluster new products that didn’t give the company the boost it had hoped, mismanagement of resources and painfully long wait times for upgrades for existing software, according to former employees and industry experts. NComputing also suffers from a dearth of North American customers; the brand is largely unknown, particularly next to competitors Dell and Hewlett-Packard. Much of that is because the company uses middlemen to sell its products, analysts say.
In the third quarter last year, NComputing’s market share slipped to 9 percent from 15.9 percent the same period the year before, and the number of units it sold to customers fell 45 percent, according to research firm IDC. In the first quarter last year, the company saw a 20 percent decline compared with 2013.
“I think that NComputing has reached the end of its capabilities,” said Clive Longbottom, an analyst with research firm Quocirca. “Without crossing the chasm to get to the next stage, it will remain a small company — and one that just withers and dies.”
Despite the slip last year, revenue remained strong — $140 million, a 56 percent increase over 2013, according to financial research firm PrivCo. However, analysts say the company was probably burning through cash at an even quicker pace to develop new products, which ultimately didn’t sell as well as company leaders promised.
“Result is that the company is bleeding cash,” said Sam Hamadeh, founder and CEO of PrivCo.
NComputing has been supported by venture capitalists who have invested close to $58 million. VCs say the company has spent most of that money; its last funding round was in 2012.
Moreover, NComputing built a business selling devices for cheap, and while that made them successful in developing nations, it didn’t generate the big sales the company needed.
“The combination of the small average selling price and the long sales cycle made NComputing become an enormous cash Hoover vacuum,” Hamadeh said. “NComputing is likely this year to become dinner than to end up with a seat at the table.”
SANTA CLARA — As startups fill every corner of vacant real estate and tech giants post record sales, one little-known empire here is crumbling in the midst of the biggest tech boom in 15 years.
