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Paradyne Corporation, a maker of 'modems,' rebounds and astounds

The turnaround of the Paradyne Corporation, a manufacturer and marketer of data-communications products, has attracted attention from the computer world and from financial experts alike.

Last year Paradyne, based in Largo, Fla., increased its revenues to $207 million - an increase of 49 percent over 1981 - according to recently released figures. Early last month, its board of directors approved a three-for-two stock split effected in the form of a dividend for stockholders of record at the close of the month.

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Those are impressive results, especially considering last year's economy. And the current results are not too bad at all for a company that nearly went under in 1974, when it posted a $3.4 million loss on revenues of only $2.6 million.

Paradyne's recovery was engineered by Robert S. Wiggins, its president, chairman, and chief executive. An alumnus of IBM and GTE, he was brought in by Paradyne's board in the young company's darkest hour.

Mr. Wiggins's two-pronged strategy for reviving Paradyne contains elements familiar to observers of IBM:

* Heavy emphasis on research and development.

* Strong sales and marketing forces, including overseas.

Paradyne, listed on the New York Stock Exchange since 1981, makes ''modems.'' A modem - or ''modulator-demodulator'' - translates digital data to analog form, and vice versa. Modems enable data-processing devices such as computers, which generate digital output, to communicate data over telephone lines, which transmit data in analog form.

Without modems it would be impossible to do the data-processing distribution chores essential to integrated systems such as those handling airline reservations.

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High-speed modems, such as Paradyne makes, represent one of the largest and fastest-growing segments of the data communications equipment market. Paradyne's high-speed synchronous modems start at 2,400 bps (bits per second) and range up to units of 16,000 bps.

The competition for this rapidly growing data-communications market is keen, and includes some of the big names in data processing and communications - IBM, AT&T, the Codex division of Motorola, and Racal-Milgo. In the past, the latter two companies have enjoyed the lion's share of the high-performance end of the data-communications market. But Paradyne's revitalized and expanded sales force has won the firm a larger market share. Paradyne overtook Codex in total revenues in 1981, and last year captured a respectable 25 percent of the high-performance modem market. Some observers feel it will soon outdistance Racal-Milgo as well, perhaps by the end of this year.

The picture didn't look so bright for Paradyne back in 1974. Datran, its largest customer, was heading toward bankruptcy. The venture capitalists who had formed Paradyne were most reluctant to pour any more money into the operation without some clear-cut new direction.

They found it in Mr. Wiggins. The progress since he took charge has been impressive. In 1974, Paradyne had less than 300 employees and one plant, in Largo. Today it has 10 times that many employees, in four manufacturing locations, including Puerto Rico, with over 1,800 employees at its headquarters plant site in Largo. About a year ago, Paradyne bought property in Clearwater, Fla., and in Puerto Rico, with an eye to expansion. From a net loss in 1974, Paradyne's sales revenues grew to over $200 million last year. Revenues of over

New-product development is central to the Wiggins approach. Paradyne now allocates 8 to 9 percent of its annual income to this end. Last year's R&D budget was $16.8 million, and this year is expected to exceed $20 million.

The company credits product development for its winning a contract to supply the Social Security Administration with an intelligent terminal system. According to Paradyne, it received this contract by combining several elements from existing products together with UNIX, a licensed software operating system for its PDN 8400 system.

The contract value of $84.2 million is for equipment leases with optional purchases spread over a 96-month systems life and maintenance for eight years. Paradyne has also been making product-development advances in its distributed data-processing and computer products.

The key to Paradyne's strong sales in an otherwise sluggish economy has been its well-trained marketing staff of end-user sales people. Its domestic sales staff nearly doubled to over 400 between 1980 and 1982. At the same time, Paradyne has been increasing its emphasis on marketing abroad, and continues to build its international sales force.

Much of Paradyne's equipment is leased to its customers, and so in 1981 the Paradyne Finance Corporation was formed to serve those customers as a wholly-owned subsidiary with an unconsolidated balance sheet.

Paradyne has also completed its acquisition of Ark Electronics Products Inc. of Melbourne, Fla., and Solid State Circuits Inc. of Springfield, Mo. The purchase of Ark is strengthening Paradyne's product line, because Ark produces devices for use in large telecommunications systems similar to those marketed by Paradyne. Solid State Circuits produces the computer-grade circuit boards Paradyne needs for producing its large-scale data-communications systems.

But a cloud continues to hang over Paradyne as it works diligently to maintain its forward pace. Late last year the company was prevented from marketing a new issue of 1.25 million common shares, when it was learned that the Securities and Exchange Commission was conducting a private administrative investigation of the Paradyne Corporation, with questions apparently centering around the company's acquisition of the social security agency contract.

However, Joseph W. Bars, a senior analyst with Value Line Investment Survey, states that this investigation ''does not appear to be a major problem. A complaint was based on Paradyne's method of demonstrating its systems prior to the award of a large contract by the Social Security Administration.The equipment Paradyne is shipping fully complies with specifications of the bid. As further evidence that the equipment is acceptable the agency converted $16 million from lease to purchase last September.''

In commenting on the situation, George B. Pressly, senior vice-president for corporate development, says: ''The investigation is ongoing and proceeding at its own pace. It has put a slight damper on the company because it has had an effect on our ability to raise money in the equity market. But the company is operating very effectively at this time.''

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