SmartDisk

By: S. Alison Chabonais

Michael Battaglia predicts that this year digital cameras will become the hottest game in town. And there will be no turning back.

Why? Digital cameras make it easy for all of us to instantly replay photographs on our own computer screen. Digital technology enables us to sort, edit, delete and revise images, print out and share photos via e-mail. No more expiration dates on photographic film. No more running to the store for color prints developed by a lab. No more living with imperfect images. Now you have the power to alter and improve your shots after the fact.

Battaglia, president and CEO of SmartDisk Corporation in Naples, explains that digital cameras are the first popular wave of digital electronic consumer appliances to use flash memory cards, highly versatile memory chips ranging in size from a postage stamp to a stick of gum. The next wave: portable digital music cards, business dictation voice cards and downloadable video cards. Can electronic picture frames and digital books be far behind?

"A year ago," says Battaglia, "I'd casually ask friends, 'What do you think of digital cameras?' The invariable response was 'Huh?' Today, the response is 'I've been thinking about buying one of those. Do you think this is the right time?'"

Two hitches delayed the digital camera business from hitting sales out of the ballpark when the technology was introduced four years ago. First, the quality of digital images had to rival those of photographic film, particularly in large size prints. Digital quality in 4- by 6-inch images is now virtually indistinguishable. It is also gaining ground in larger size formats. Second, before SmartDisk made its play, consumers needed a separate piece of equipment to feed information from camera to computer. And, as Battaglia notes, Americans are reluctant to add another cable to the tangle on their desk.

Enter SmartDisk, a 1998 joint venture between Naples-based Fischer International Systems Corporation and Japanese powerhouse Toshiba Corporation. SmartDisk started by acquiring the exclusive patent for a handy flash memory card carrier that solves the cable problem.

Beauty in Simplicity

The product is straightforward and simple to use. Consumers slip their digital camera's flash memory card into the corresponding SmartDisk floppy-disk-size FlashPath device, insert FlashPath into their computer disk drive and voilà. You have instant, easy access to your digital photos. If you wish to transport the images to your office, show them to family and friends, transport them with a laptop or drop them off at a professional printer, just carry along your FlashPath device and flash memory card in your purse or pocket.

"What we do is simplify the digital lifestyle," says Battaglia, whose company sold a million FlashPath devices in 1999 and projects doubling of sales each year. "We make it soooo easy to get smart card data into your PC to edit it, add text and sound and mail it over the Internet."

Toshiba, whose digital camera products claimed 90 percent of SmartDisk sales in 1999, stepped up to the plate first. Their first year of the deal, Toshiba's photographic flash memory cards jumped from zero to 35 percent of worldwide market share, in part due to SmartDisk's enabling device. Toshiba sales of its 16 megabyte cards (each providing equivalent storage to 10 floppy diskettes) hit one million units a month.

"When we shook hands with Toshiba in the fall of 1996, I knew that we had the opportunity to go big. Our fate rested in our own hands," says Battaglia, who holds that success lies in "executing well, not flawlessly, but well."

Following the Toshiba deal, SmartDisk signed purchase, distribution and sales and marketing agreements for custom designed FlashPath devices with Olympus, FujiFilm, Sharp and Sanyo. Sony FlashPaths subsequently went into volume production the fourth quarter of 1999. This year, Sony may in turn license its device to Iawa, Fujitsu, Kenwood, Pioneer and separate divisions of Sharp and Sanyo. SanDisk's version of FlashPath goes into production the first quarter of 2000. This California company will open doors to JVC, Panasonic and Nokia. With 350 million PCs in use worldwide, and counting, it seems that the sky's the limit for a "universal medium" like FlashPath.

Battaglia believes in his product. So too, do his hundreds of investors and big league customers. In October 1999, the company announced an initial public offering of $39 million for three million shares of common stock priced at $13 a share. By December, the stock was trading for $35 to $50 a share.

New Territories

SmartDisk's growth strategy hinges on deploying new products that support existing flash memory cards, attracting and capitalizing on partnerships with OEM customers, developing new generations of products for changing markets, and finding new applications for flash memory cards. One of the company's new product lines is a device used to read and write on miniature storage media known as smart cards.

Sized like a credit card and described as "a computer in a wallet," a single smart card theoretically could serve as your personal identification, credit card, automated teller card, mass-transit pass, carrier of critical medical information and cash substitute for small purchases over the Internet. In 1999, SmartDisk signed Hitachi as a sales and distribution partner, customer and investor in its Smarty device, which similarly inserts directly into a computer disk drive. Western Europe and other countries have led the way in putting hundreds of millions of smart telephone credit cards in consumers' hands.

SmartDisk maintains a huge edge in retaining the exclusive right to manufacture its consumer-friendly flash memory and smart card reading/writing devices. FlashPath products, which sell for $80 to $100 at retail, are easier to use and four times faster than current competing technologies. Asian production quality is so high that only seven of 350 thousand units have been traded in

Of course, several of SmartDisk's elite Japanese OEM partners, household brand names in consumer electronics, have approached the Naples start-up for permission to manufacture their own version of FlashPath. They also ask for exclusive access to the technology. "In both cases, we said no," grins Battaglia. "Guess that's why I get paid the big bucks."

Other potential competitors have become his best customers. Many become investors. They not only extend distribution, they advertise SmartDisk's FlashPath free of charge. The product regularly appears in half and full-page retail ads in local newspapers, as well as national publications USA Today and the Wall Street Journal.

Experienced Riders

The credentials of Battaglia's management team are impressive, racking up 130 years of experience. Board members include former chairman and CEOs of Wang and VeriFone (now part of Hewlett-Packard) as well as a general manager for marketing at Toshiba, a heavy hitter with 250,000 employees worldwide. Battaglia's own 32 years of marketing and sales management training with name computer technology companies, including Fischer International Systems, honed a keen appreciation for the value of building relationships.

As Quresh Sachee, marketing vice president for SmartDisk, observes of Battaglia, "It's one thing to make contacts. It's quite another to sign someone on the bottom line." That's true whether it's a highly desirable customer or a highly qualified software developer or engineer.

In turn, Battaglia says he recognizes the importance in his employees. "Selection, retention and nurturing of a fine team is my top priority," he says. He also predicts that he will have to double his workforce every year to keep up with demand for his products.

Employee performance is rewarded in salaries, bonuses and stock options reflecting the exciting, fast growth of a company that is seizing the digital future. SmartDisk's staff retention to attrition score is 100 to zip. Together, 58 employees in Naples, Tokyo and Atlanta turned in their first profit on schedule in the third quarter of 1999 on forecasted annual sales of $40 million, up from just over $15 million in 1998. Summer vacations and Christmas gift sales understandably constitute high seasons.

"In a technology start-up, you take risks, but if you're not running the bases at 1,000 miles per hour, you're going to be left in the dust," says Battaglia.

All in all, the SmartDisk team has what it takes to be number one in their field. It will be a good game to watch.

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S. Alison Chabonais is a freelance business writer and public relations consultant.

Addison Fischer,

CEO of Fischer International Systems

A decade and more ago, inventor, investor and businessman Addison Fischer foresaw that our way of conducting business through contracts, third parties and signatures would all translate into the world of e-commerce. It's a term he may have been the first to use. Long before commercialization of the Internet, Fischer was envisioning ways to secure data, ensure personal privacy and safeguard electronic commerce. He serves on a variety of committees that set U.S. standards for computer security and e-commerce.

Addison founded Fischer International Systems Corporation of Naples in 1982 to "get rid of all paper transactions." Today, the firm's expertise in building electronic messaging, directory synchronization and electronic commerce solutions are in demand by global 2000 companies, financial institutions, healthcare organizations and federal, state and foreign government agencies.