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SII sale possible.

Somewhat hazy about development and marketing, and with its fiscal future still foggy, System Integrators Inc. is looking to reclaim its developer's identity and financial footing in the new year.

By early autumn the long-time newspaper systems vendor was looking for an investor to take the company over from the banks that were its lenders and have been its principal owners since it emerged from a Chapter 11 reorganization a few years ago.

At the same time, its relationship with Australia's Cybergraphic Systems ended. In that alliance, while SII was to continue development in certain areas, it said it would move toward operating solely as an integrator. Sales to new customers among mid-sized newspapers would consist of Cybergraphic's Genera products -- its latest Windows NT-based front-end and pagination software. From the alliance's start, SII said it would continue to serve larger customers with its own Tandem-based systems, although Cybergraphic viewed Genera as a product that could be scaled up for larger newspapers. (See E&P, June 15, 1996, p. 25; Sept. 28, p. 24.)

The events are the latest among the company's responses to market and technology changes since the late 1980s. Founded in the mid-1970s, taken public, then bought out by management when founder Jim Lennane cashed out in 1988, Sacramento-based SII changed ownership again in the mid-1990s. Even its principal supplier now has a new owner. It's seen five chief executives in the last five years. Its approach to the market has changed several times. Little or nothing came from its two alliances with successful competitors -- one then developing only for the Macintosh, the other now developing for Windows NT.

In recent years, some of SII's biggest and oldest customers returned for front-end upgrades, but went elsewhere for pagination. A newer user, which turned to SII after being burned by a big vendor that exited the business, sought only a newer Tandem CPU and is shopping for new front ends.

At the Daily Oklahoman, an SII showcase of the early 1990s, they're keeping nothing -- swapping out the entire SII editorial, advertising and text-and-rules pagination (E&P, March 10, 1990, p. 27) for NewsMaker editorial and pagination, MetroCash classified advertising and C-Pag classified pagination from Publishing Systems Corp.

Oklahoma Publishing Co. did not divulge details of the death of a deal last winter. OPUBCO production director Louis Messina, however, said, "We looked closely at SII, and our preference would have been to stay with that vendor. But it became obvious to us that they lost their enthusiasm and sense of direction.'

OPUBCO's Harris servers arrived last month, and system installation and a network upgrade are under way. After looking at several other vendors, including a positive assessment of Atex's Enterprise ad system, said Messina, "Harris came closest to being a full-line vendor for us," with advertising, editorial and pagination "all in one package! Messina hopes to have NewsMaker and MetroCash running in spring and in summer, respectively.

Through it all, SII's trademark Coyote front end has survived, owing to its popularity and evolution from proprietary terminals to plug-in PC hardware to the latest graphical, fully Windows-compatible software. It even outlived its own internal competitor, the OS/2-based MTX workstation. Also surviving is the system's Tandem Computers NonStop database and communications host.

Two months ago the company also reported record fourth-quarter sales, including 10 customers in September alone, helping close fiscal 1997 with its first growth in the three years since it came out of Chapter 11 protection. At the very least, existing customers wanted Coyote/3s and/or more-powerful Tandems.

The main objective of his search for an investor or owner, said SII chief executive Frank Washington, is to reduce the company's debt and "allow the introduction of additional outside funding." Before joining the company in 1996, Washington himself was considering its purchase.

Though rumors last year held Cybergraphic as a possible buyer, that company had the first of its own new line of software just coming through the pipeline, and the deal already gave it access to SII's customers almost everywhere except North America. (Since the alliance ended, SII's distributor for northern Europe, Finland's ICL Data Oy, reportedly will now also represent Cybergraphic.)

According to former SII president Alden Edwards, now president of Advanced Technical Solutions, the banks that own most of SII wrote off its debt during its bankruptcy. He said an SII board decision to sell the company may have preceded Washington's latest effort to find new funding or ownership.

By early this month there had been no change in "a recapitalization process that ... involves various parties," which Washington would not identify. Such a process "has a life of its own," he said, calling it a distraction and adding that he had hoped to see it concluded by October. Though "reluctant to speculate" on when it may be completed, he said, "We're talking about at worst a couple of months.

"From an operating standpoint," he continued, SII "is doing well enough" that funding is not needed for its day-to-day operations, but will be focused on various growth opportunities -- year-2000 work the biggest among them. Other benefits of the restructuring, he said, will be "to finalize the ownership and to, basically, get all of the various company's constituencies on the same wavelength."

Washington also remarked: "To some degree, time has played to our advantage in the sense that the company's performance continues to improve, and with that it really does give us some additional options, beyond the ones that were just being explored initially."

The company's positive performance, he explained, relates not so much to making SII more attractive to new investors as to possibly permitting an internal restructuring without recourse to outside financing or to securing such financing more on management's terms than might otherwise be the case.

Noting many companies in similar situations "can get in trouble" by the resulting distractions, Washington was pleased to see SII faring well during the process. In such a situation, he said, "It's a first for me where the company's has actually improved dramatically" -- circumstances that he attributed to the "quality of the employees."

After repeated work force reductions through the 1990s, SII has been hiring as business picked up this year, especially in customer service, according to Washington. He said it is also "putting out a pretty big dragnet for R&D people, because we've got a pretty rigorous schedule on the enhanced Coyote products, and if possible we're going to try to accelerate that."

In addition to adding features, functions and a graphical interface to the current Coyote/3 software, SIT is again at work on pagination. The company, said Washington, has "put together a migration strategy" for older customers. Its relationship with Tandem is unchanged, he said, and Tandem's OS will remain available for SII systems.

What Tandem can offer future SII systems depends in part on the success of its work in creating on an NT platform the kind of fault tolerance it has traditionally provided SII systems. Washington said there will be a place for NT-based SII systems despite the break with Cybergraphic and apart from Tandem's purchase by PC/server manufacturer Compaq Computer.

In looking to work with Tandem on developing for Windows, he said those projects will be "facilitated by the Compaq acquisition. It's obviously in their own interest to be able to run on an NT platform."
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Title Annotation:System Integrators Inc.
Author:Rosenberg, Jim
Publication:Editor & Publisher
Date:Dec 13, 1997
Words:1225
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