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Lantronix Claims Turnaround Progress

Busch: “expanding our sales and marketing efforts”

Kurt Busch set out to cut costs, lower inventory, identify growth opportunities and raise capital in his first year at the helm of Irvine-based networking equipment company Lantronix Inc.

The chief executive has checked those off his to-do list, and now is crafting a second-year game plan with an eye toward driving future revenue.

“We’re expanding our sales and marketing efforts and our channel to enhance revenue growth for the company,” he told the Business Journal.

Lantronix makes electronic devices and software that allow secure online communication with medical equipment, security devices, smart phones, motor vehicles, meters and thermostats, retail terminals and ATMs.

The company’s fiscal 2012, which started in July 2011, began with a management shake-up that included Busch’s appointment. It ended with an adjusted profit of $351,000 for the June quarter, beating Wall Street expectations.

Quarterly revenue declined 4% to $11.6 million, a bit lower than the consensus analysts forecast of $12.1 million.

“The real story for Lantronix is not on the operational results but the release of seven new products in the last nine months,” Busch said.

Investors still appear skeptical despite progress on the company’s turnaround mission. Shares surged during the first quarter of the year and have sagged since.

Print Server

The company’s external print server—compatible with Apple devices—supports thousands of printers from brands such as HP, Brother, Epson, Canon, Dell and Xerox—has garnered industry accolades and greater adoption since its late 2011 release.

The product connects personal devices to home or office printers remotely and is designed for small to midsize businesses. It was developed and manufactured in just four months.

Lantronix also recently introduced a medical aggregator that allows healthcare professionals to access data in separate locations, as well as a high-performance Wi-Fi device server and what the company bills as the world’s smallest embedded device server that acts as a miniature computer.

New Products

Most of the new products were developed by the management team Busch assembled less than a year ago.

A recent blog post on investor website Seeking Alpha credited the company on two fronts a year into its turnaround efforts: “establishing a profitable level of operations [and] creating an efficient new-product development machine.”

The new product road map will quadruple the company’s addressable market to $2.8 billion, according to Busch.

The company also has improved gross margins for four straight quarters, reaching almost 51% in the June quarter—in line with industry averages.

Inventory has been reduced by 35% year-over-year, according to Busch.

Higher inventories had led to cash-flow problems, which in turn had been causing Lantronix to miss suppliers’ payment deadlines.

• Headquarters: Irvine

• Business: Networking equipment

• Founded: 1989

• Ticker symbol: LTRX (Nasdaq)

• Fiscal 2011 revenue: $45.4 million

• Recent earnings: ($351 million) for fiscal fourth quarter ended June 30

• Market value: About $27 million

• Notable: Added Emulex Corp. Chairman Paul Folino to Lantronix board in June

Board’s Profile

Lantronix also boosted the profile of its board in the last year with the addition of Emulex Corp. Chairman Paul Folino in June. Folino, one of the better-connected technology executives in Orange County, will chair Lantronix’s corporate governance committee and sit on the audit and compensation committees.

He was the first board member appointed under the most recent chairmanship of Bernhard Bruscha, the company’s founder and largest shareholder who returned to the top board post in late May.

Bruscha—who founded Lantronix in 1989 and served as its chairman from June 1989 to May 2002—has pushed for management and board changes in the last year as the company struggled to achieve profitability.

Boiling Point

Boardroom turmoil hit a boiling point about 15 months ago, when former chief executive Jerry Chase and financial chief Reagan Sakai resigned amid complaints by Bruscha. The complaints led to an internal investigation that found improper use of travel expenses and stock options, as well as misleading statements made during conference calls with investors and analysts, according to the company.

Chase said in a resignation letter that he disagreed with the findings and called the probe “flawed and unfair.”

Larry Sanders, a former Lantronix chairman, took over as interim chief executive in late June as part of the executive shake-up. Busch arrived in August from Newport Beach-based networking chipmaker Mindspeed Technologies Inc., replacing Sanders.

Busch had served as senior vice president and general manager for Mindspeed, where he led the company’s $52 million high-performance analog division.

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