A lot has changed since January when Javelin Systems Inc. changed its name to Aspeon Inc.
The Irvine-based company, which sells touchscreens and other computer gear to restaurant chains such as McDonald’s and Taco Bell, has shifted strategic gears.
Computers for tracking how many Big Macs or tacos are ordered still make up the bulk of Aspeon’s business. But that market isn’t exactly booming. Only every three years or so do restaurants upgrade their technology.
So Aspeon is moving up the food chain. It wants to go from tracking purchases at order counters to managing overall sales and other data for food industry customers. It’s also looking to move into a new market: medical technology.
Along the way, Aspeon hopes to join an emerging segment of technology companies known as application service providers, or ASPs.
“There is an ASP land-grab going on out there,” said Richard Stack, the company’s president and chief executive. “And we believe our model will be universally adopted.”
That’s where the name change comes in. Stack came up with Aspeon simply by taking “ASP” and adding a future-evoking suffix, “eon.”
Application service providers rent software that customers access through a network. The software is hosted offsite. ASPs often offer software customization, data storage and other services.
Investors took note of the strategy change at Aspeon back in February and drove the company’s stock from 15 to around 30. Then came March’s correction in technology shares, which didn’t spare Aspeon. Trouble is, while other tech companies have shown signs of recovery, Aspeon still sits at around 5, the same price as its 1996 initial public offering.
Analysts rushed to Aspeon early on, thinking Stack might be planning to spin off Aspeon Solutions,the ASP arm of the business. Stack doesn’t rule out a public offering but hasn’t set a date. Still, for now, investors aren’t flocking to Aspeon to get a piece of any possible spin off.
Stack is confident Aspeon will find its way by targeting small to midsize companies that need back-office technology without the back office.
But Aspeon’s strategy is in the works yet. For the quarter ended March 31, the company posted $20 million in sales, down slightly from a year ago. The company reported an operating loss of $1.9 million, vs. an operating profit of $1.9 million a year ago.
Most large foodservice companies already have internal technology operations. But that’s not the case at most midsize ones,those with several dozen to several hundred restaurants, or $100 million to about $500 million in annual revenue.
Stack’s thinking is that mid-size businesses don’t have the resources or time to create and staff a technology department and keep pace with software that’s in a constant state of revision.
And these days, midsize businesses have another problem.
“No one can retain their information technology talent in this economy,” he said.
In March, Aspeon placed $10 million in convertible preferred stock with Marshall Capital Management Inc., a Credit Suisse First Boston Corp. affiliate. The company plans to use the money to pursue its ASP strategy.
As part of the financing, Marshall received warrants to buy 583,000 shares of Aspeon Inc. at $17,more than three times its current price,and an additional right to buy 1.2 million shares of ASP subsidiary Aspeon Solutions at $5 per share.
As part of the investment, the ASP unit was given a valuation of $100 million, according to First Security Van Kasper. That’s about twice the $56 million market capitalization for Aspeon as a whole.
But observers are waiting to see if Aspeon can build up its ASP business, turnaround recent losses and jump-start its spotty growth record.
“Aspeon is in a critical transition period and faces significant internal and external challenges going forward,” according to a recent First Security Van Kasper report.
Still, among the few analysts who follow Aspeon, most remain bullish. Three out of four call the company a buy, with a fourth at a neutral rating. Van Kasper re-initiated coverage on May 22 with an “accumulate” rating and a 12- to 18-month stock price target of 10.
So far, Stack said the ASP business has eight clients producing an average of $25,000 to $35,000 in sales per month.
While much of the company’s focus is on building an ASP, Javelin Systems and its point-of-sale terminals is the springboard for the company’s new push.
The terminals,space-age stuff that give a starship look to some corners of Aspeon’s offices,are the core of the company’s business.
In addition to McDonald’s, Javelin’s customers include: Britain’s Allied Domecq plc (Dunkin’ Donuts, Baskin-Robbins and sandwich shop Togo’s); Xando Cos & #237; Inc., an East Coast chain of coffeehouses; Denver-based Champps Americana; and Jollibee Foods Corp., a Filipino fast food operator with 400 restaurants.
Stack took Javelin Systems public in 1996 after the company launched in September 1995. Since then, he has used cash flow and investments to build the company via acquisitions.
Aspeon’s ASP business got a boost with the April 1999 purchase of Philadelphia-based Dynamic Technologies Inc. The company provides ASP software and hosting services. Aspeon also bought Restaurant Consulting Services, a food service ASP, last August.
All told, the company has made about $45 million in acquisitions since 1997, Stack said.
Stack has also brought on experienced food service executives from companies such as Aramark Corp. and American Franchise Corp. Director Andrew Puzder is a Fidelity National Financial Inc. vice president, general counsel at CKE Restaurants Inc. and chief executive of William Foley’s Santa Barbara Restaurant Group Inc.
The key to Aspeon’s ASP strategy is focus, Stack said.
“Most companies offering this kind of service are general, not industry specific,” he said.
General ASP services include data-intensive duties such as financials or tracking customers.
Aspeon packages software from Oracle Corp., Microsoft Corp., Great Plains Software Inc. and others and customizes it to fit clients’ needs, Stack said. The company focuses on key business operations such as payroll and back-office functions like inventory management, he said.
As an ASP, Aspeon stores data from customers remotely at data centers in Philadelphia and Boston. Workers at companies that contract with Aspeon access the information from their desks, home or on the road via a Web browser.
Aspeon has outgrown its current office in Irvine and is seeking new digs. Stack plans to put the company’s two units in separate locations,which, among other things, would make a potential spin-off of the ASP unit cleaner. He’s looking to keep both in Orange County.
Other company offices are in Philadelphia, St. Louis, Boston, Atlanta and in the United Kingdom, Australia and Singapore.
Stack also has targeted a new industry for his ASP subsidiary: biotechnology. It’s a fitting sector for a burgeoning tech company, since biotech is growing as well. And Stack doesn’t think it’s too soon after the foodservice effort began.
“We’ve been in foodservice for two years and have more than enough experience,” he said.
Stack wants the same kinds of clients for his Aspeon Life Sciences unit as in the company’s core food service operation,companies with far-flung representatives who may need data around the clock and have no internal technology department to manage it with.
One of Aspeon’s first medical technology customers is a big one: Aventis SA, the drug maker formed by the merger of Europe’s Rhone-Poulenc Rorer and Hoechst.
Aventis is much larger than the companies Aspeon is targeting in the medical technology market. But Aventis gives Aspeon credibility, Stack said.
As for Javelin, the unit also may pursue new markets, such as gaming management.
“We think our core capabilities strong and are usable by other industries,” Stack said. “We want to take the high ground and grow a big company.” n
