Panja Drops Internet Appliance Business after founder Scott Miller Returns to Helm

When Panja launched a consumer broadband division in 1999, a collective cheer echoed across the industry. Everyone seemed to be downright giddy about the prospects of low-cost Internetworked entertainment devices from a leader in audio/video control systems. The popular press plastered Panja across its pages. Investors drove up Panja stock (Nasdaq: PNJA). The Ciscos, Microsofts and Intels of the world publicly praised Panja and its vision. Progressive homebuilders promised Panja product in every new home in their networked communities.

As deafening as the kudos were, though, they couldn't hush the groans of committed dealers and manufacturers who made Panja (Richardson, TX) the profitable business it was.

"[Panja predecessor] AMX is my single most important business partner and I have a lot of faith in them," said longtime AMX dealer Bob Gullo of Electronics Design Group, back in 1999, when Panja presented its new mass-market business model to its top dealers. "But the one general question is: All this sounds great for Panja, but it isn't clear how we [home systems integrators] fit in."

Fast forward to today, and there's a lot more venom from one-time Panja faithfuls like Rob Gerhardt of Phoenix Systems:

"Since its IPO and transition to 'Panja' there has been an unfortunate attempt to crack the consumer Internet appliance market. First the Panja 1000 and now the equally silly BMP-1. While it was amusing to watch them fail, this was a company we had come to respect and we were clearly being abandoned."

Panja financials bear that out. Throughout its 2000 annual report, the company thanked "strong earnings from Panja's core business" for fueling huge investments in its risky consumer endeavors. Net income of $0.8 million in fiscal 1998 (ended March 31)and $2.8 million in 1999 gave way to losses of $4.1 million by 2000.


P3: Peeved Panja Partners?

Dealers weren't the only Panja followers feeling slighted by Panja's push into the mass market. Many manufacturers in Panja's once-venerable Panja Partner Program (P3) have all but given up on integrating their third-party subsystems (security, HVAC and audio, for example) into the Panja platform.

"We saw P3 as a way to roll our subsystems into an advanced whole-house control system. Panja promised technical and marketing support if we adopted their protocol, but they never delivered," says a representative from one P3 partner who asked not to be identified. "Panja lost their focus, not only in terms of its core traditional business [professionally installed integrated systems] but in its own organization. They kept shuffling players so you never knew who to talk to. Furthermore, Panja's distribution channels are just as confused as Panja is. Even in the core business, the company 'kind of' sells direct and 'kind of' sells through manufacturers' reps. So they could never tell us who their customers were. It's hard to develop a true partnership under those conditions."

And so, like many manufacturers, this particular P3 partner switched loyalties to Panja archrival Crestron (Rockleigh, NJ), and has never looked back: "Crestron is very focused on the professional installer and committed to its I2P [Internet Industry Partnership] program," he says. "They did what they said they would do, and when they said they would do it. Crestron knows who its customers are, and they've already put us in front of their dealers."

He continues: "Panja was clearly on top. Now Crestron is seen as the preeminent company in integrated controls." (See Crestron Q&A below.)

Instead of making and keeping buddies in the custom-installation world--where business is thriving despite an economic downturn--Panja squandered its energy on higher-stakes "partners," many of whom are in much worse shape than Panja (Global Crossing, Cisco, MP3.com, to name a few).

But then, it's easy to be critical in hindsight. After all, Panja isn't the only company that went berserk in the face of very real windfalls in the Internet world. "We made a big bet on broadband deployment that didn't happen as quickly as lots of people predicted," said outgoing Panja CEO Joe Hardt.

And, like those lots of others, Panja's broadband strategy flopped. The good news is that Panja corporate isn't likely to go down with it. The company still has the infrastructure for success in its core business, and Panja founder Scott Miller plans to resurrect his baby to be the powerhouse it was.

Miller time again

Miller founded AMX (now Panja) in 1982, serving actively as CEO until 1995, when the company went public. He served quietly as chairman until 1999, when "Internet-savvy" AMX board member John McHale (founder of the nearly-defunct Netpliance Internet-appliance company) forked out $5 million for an equity stake in the company and the title of chairman of the board. Miller went off to play golf and cheer on the Dallas Stars ice-hockey team.

Like many companies star-struck by the dot-com world, Panja transformed itself into an "Internet business," and saw its stock price soar--way before the company released a single Web-related product or service. From a high of $45 in early 2000, Panja's stock now trades at around $3-$4, significantly below its $9 IPO price.

As the stock market tired of unprofitable Internet businesses, Miller grew bored of golf. As of Feb. 23, he's Panja's new CEO, replacing Joe Hardt, who had replaced Miller in 1995. "We now can answer the question: How much golf can one man play?" said Hardt, who replaced Panja chairman Berry Cash, but quickly resigned the post.

Before his resignation, Hardt said little about potential changes under Miller. "We're not saying much. Scott is just going out there and making money....He'll get back to the kick-ass support this company was built on."

Miller, who is now president, CEO and chairman, led a $5 million private equity placement in March, explaining, "The additional financing will strengthen and expand support for our integrator distribution channels."

At the end of March, Panja disbanded the consumer Internet appliance division that had crippled the firm, reducing the company-wide workforce by about 10 percent (47 jobs).

"I'm serious about making this happen. We will make the hard decisions. We will not go through another year where we're unprofitable," says Miller. "We will only be in markets that we can be dominant and be profitable. It's a new day, and it's all about the dealers."

In a letter to its dealers, Miller wrote: "Our first to commitment has always been to you, and we will continue to do everything in our power to strengthen that partnership. By dedicating the vast majority of our resources toward you, we have implemented some improvements in order to serve you better."

Those "improvements" are still under wraps, but they start with an overhaul of Panja's dealer-support teams. "It had gotten too complicated," says Miller. "There were too many phone numbers, too many places to go. Now we give dealers one phone number."

Longtime Panja dealers who remember the Miller years are hoping for a return to the good ol' days. "I have known Scott for 12 years and I am excited to hear that he is back," says Rob Gerhardt, the longtime AMX dealer. "He was a visionary but also a pragmatic businessman who placed the dealer first. Since his departure, Panja has embarked on what have been clearly ill-advised forays into the consumer market at the expense of the established dealer base. I fully expect that Scott will repair the damage done and refocus Panja towards a brilliant future."

The good news

The detour into broadband wasn't a total loss for Panja. "We think our work is valid. Broadband is still going to happen, and the viability of our [broadband] product has been very well received," said Hardt before his departure. "Some of the work we did has a lot of relevance for residential dealers."

Indeed, the Internet still plays a big role in Panja products, particularly the new NetLinx platform which existing integrators swear by.

In terms of corporate structure, Panja last year closed down its Salt Lake City office, "which eliminated a lot of overhead," says Hardt. "We had had two credit departments, two accounting departments, two big operations...."

From an R&D standpoint, said Hardt, "the elimination of 1,000 miles between engineering groups helped a lot."

Furthermore, Panja has continued all along to invest in its core business, most notably in training and development. The new corporate headquarters boasts state-of-the-art training facilities, including a 72-seat complex to host a full range of hands-on training.

Panja recently graduated its first class of technicians hired under the Technical Rotation Placement Program (TRPP) launched nine months ago.

Under the program, Panja recruits technical school graduates and pays them during nine months of on-the-job training and in-class instruction.

Technical classes include system design, programming and installation. The class also works with several Panja teams, from Technical Research to Sales to Tech Support. During the final two months, each student is placed with a Panja dealer to gain on-site experience.

"We saw a need within the industry for people that had control-system knowledge and experience," says Randy Riebe, vice president and general manager of Panja. "With the current state of the economy, dealers were too busy to train new people."

Panja foots the bill for all the training, including the payment of a "competitive" salary to its students. "We feel this has long-term benefits for the industry. You have to draw these technicians away from other industries," says Riebe. "There are a lot of owners that are starting new [systems integration] businesses, but there aren't a lot of programmers coming straight out of college."

All six graduates of Panja's first TRPP course were placed with local Panja dealers.

The best news at is that morale within Panja is positive. "As a whole, the company is very much behind the restructuring," says Peter York, Panja vice chairman and co-founder. "I'm already hearing from dealers, as well as from our reps about how great it is to see the old AMX spirit back."

So...everyone wants to know, will Miller change the name back to AMX? York says, "We don't have any plans at this time to change the name back to AMX, but it could be something we might look at in the future."