Stephen Rizzone may not yet be a household name like Michael Eisner or Eli Broad, but he has suddenly emerged as the mastermind behind one of the biggest and quickest L.A. business transformations in recent history.
In six short months, Rizzone took a sluggish, obscure Alhambra outfit called Ortel Corp. and turned it into a telecom star that Lucent Technologies Inc. last week agreed to buy for $3 billion.
“He could have sold the company for half the price and it still would have been an unbelievable accomplishment,” said Noam Lotan, chief executive of MRV Communications Inc., a designer and manufacturer of computer networking products in Chatsworth.
“Stephen Rizzone came to Ortel with the eyes of a venture capitalist,” said Patrick Houghton, senior vice president and head of the technology group at Sutro & Co. “He looked at the company as a multiple start-up opportunity allocating capital where needed, bringing talent to run the business, focusing the company on its core competencies, and cutting off anything that didn’t make sense.”
Rizzone dressed in classic new-media business attire (blue jeans, blue-cotton shirt and white tennis shoes) was modest last week about taking credit for Ortel’s performance, instead pointing to the company’s management and engineering teams.
“Ortel looked to be a company that had significant potential, but it had not broken out and realized that potential yet,” he said. “Part of the issue was that for the first 19 years, the company was largely an engineering-based organization, and at some point in time you have to migrate the company to the next level.”
That involved Rizzone bringing in a team of marketing executives, refocusing Ortel on high-growth/high-margin segments, spinning off its wireless division, and folding the satellite communications division into two core businesses telecommunications and broadband cable TV.
The results were quick, and explosive. After bouncing around the $10-$20 range for months, Ortel’s share price bolted upward last October. It peaked at $189.50 a share earlier this month, before settling back to about $160 as of late last week.
Rizzone is no stranger to invigorating lackluster companies. He followed a similar formula as president and chief executive of NetVantage Inc., an El Segundo-based computer-switch manufacturer which he returned to profitability and then sold off to Cabletron Systems Inc. in 1998.
In between leaving NetVantage and joining Ortel, Rizzone was entrepreneur in residence with Crosspoint Venture Partners, a venture capital firm in Irvine.
His background is in sales and marketing, and he speaks precisely in laying out the chain of events that unfolded over the last six months.
“My mandate was to come into the company and take what were the significant assets and technical talent of the company, and to develop and execute a plan to drive these to the next level,” said Rizzone, who now holds the titles of chairman, chief executive and president. “You need to be more of an outbound-focused company; you need to be more of a market-oriented company.”
Analysts agreed that Ortel has always had the technology and talent (with its slate of Caltech, MIT, and Stanford Ph.D.s) to be a key player in the booming optical networking industry. But its management team, largely composed of Caltech scientists who had founded the company back in 1980, lacked the marketing savvy to capitalize on its potential.
“The initial team did a good job, but their core competency was in manufacturing,” said Peter Andrew, an analyst with A.G. Edwards & Sons. “So what happened was that they made great products, but they would ship them two months late. As a result, the salespeople spent their time holding customers’ hands rather than seeking out new ones and selling products.”
Sizzling market segment
Ortel designs and manufactures laser transmitters and receivers that are used in fiber-optic networks to transmit large volumes of data at the speed of light. With the anticipated convergence of the Internet, cable television, and telecommunications, analysts expect the demand for this type of technology to grow exponentially.
The market for optical components is expected to increase from $5.1 billion in 1999 to $21.3 billion by 2003, according to research firm RHK Inc. Lucent’s acquisition of Ortel is seen as a play to compete with the other main players in this market, JDS Uniphase Corp. and Nortel Networks Corp.
“AT & T; is Lucent’s biggest customer and they just placed a $100 billion bet on cable through acquiring Media One and other cable operators,” said Houghton. “That’s what Lucent bought (Ortel) for. There’s going to be a massive demand for the optical components that Ortel produces.”
Rizzone realized that potential and set about to quickly exploit it.
For the second quarter ended Oct. 31, Rizzone had returned the company to profitability, posting net income of $253,000 (2 cents per share), vs. a net loss of $4.6 million (39 cents) in the like prior-year period.
Stock takes flight
Ortel stock, which was trading at around $14 a share at the beginning of October, doubled in value by the end of the month. And that was just the beginning.
What catapulted the shares even further was the success of Sycamore Networks Inc., an optical switching company based in Chelmsford, Mass., that went public last October. Its shares shot up by 386 percent on the first day of trading. Sycamore’s stock, initially offered at $38 a share, closed at $314.06 on Feb. 10.
As it turns out, Ortel owns a 9.6 percent stake in Tellium Inc., based in Oceanport, N.J., which manufacturers similar high-capacity optical switches, an integral component in transmitting large quantities of data over optical networks. Analysts expect Tellium to also make a huge splash when it goes public within the next few months.
“Once we started to get around $30 a share, the institutions started to take notice,” said Rizonne. “We are in a very high-visibility marketplace, and when it looked like we were executing and that this company had prospects of profitability, the analysts came in and gave us positive ratings.”
By the end last year, Ortel stock had exploded to $120, and by the beginning of February, on speculation of an imminent takeover, it peaked at $189.50.
The acquisition will not result in any layoffs, said Rizonne, who says he will oversee Ortel’s just-announced move to the former H.F. Ahmanson & Co. headquarters in Irwindale later this year and stay on to run the company under Lucent.
