Eastside Business -- Bsquare Riding High On Success Of Windows Ce
Bsquare has gotten big by working with small things.
Things like microprocessors, hand-held navigation devices and industrial computers, palm-size computers - all driven by Microsoft's newest operating system, Windows CE.
Bsquare founders Bill Baxter, Al Dosser and Peter Gregory have worked on nothing but that pint-size operating system since they left Digital more than four years ago.
As manufacturers roll out a dizzying array of new electronic devices - from television set-top boxes to hand-held computers, many of them running on CE - Bsquare is growing like crazy. The company, which has 40 job openings, has mushroomed from the three founders into a corporation with 300 employees in Bellevue and 15 others in its new Munich and Tokyo subsidiaries.
Best of all for Bsquare, the end of the growth curve isn't yet in sight. "Information appliances" are expected to outsell home computers within two years. International Data, a market-research company, predicts worldwide sales of such devices will grow from about 6 million last year to 55 million in 2002, with 20.8 million of those devices being sold in the U.S. alone.
There's no assurance, of course, that business will continue to boom. Microsoft is facing stiff competition from manufacturers like 3Com's Palm Computing, which has built its own highly popular operating system.
But sales of Windows CE devices are growing rapidly. And, as with earlier Microsoft platforms, CE is creating thousands of jobs at other companies scrambling to bring out devices and programs using the new technology.
Nowhere has the spinoff effect been as apparent as at Bsquare, the largest company working exclusively with Windows CE products. (Only Microsoft has more people working on Windows CE: 1,000.)
"They're riding a wave that looks like it's going to be huge," Michael Kwatinetz, a high-tech analyst at Credit Suisse First Boston, says of Bsquare.
The company's sales increased from $14.4 million in 1997 to $24.6 million in 1998. March was the company's first $3 million month.
"Every year I predict it will slow down and I'm wrong by about 50 percent," says Baxter, the president and chief executive.
"We've been a profitable company since day one - since about 3 o'clock on our first day," says co-founder and senior vice president Al Dosser.
Bsquare last year received $15 million in financing from EnCompass Ventures of Kirkland and TA Associates of Boston. Much of that money remains in the bank because the company has been able to fund its expansion out of sales, Baxter says.
Bsquare's offices, now scattered in three Bellevue locations, will be reunited this fall on four floors of a new building at Sunset North Corporate Campus, just across Interstate 90 from the company's existing headquarters.
All employees receive stock options in the privately held company. Executives have discussed Bsquare's future with investment bankers, but haven't decided whether the next step is more likely to be its acquisition by another company or a public offering.
Devices under development include set-top boxes that will connect televisions to the Internet, "smart" telephones and TV remote controls connected to the Internet, hand-held games and TV set-top game consoles.
Bsquare has been involved in almost every aspect of Windows CE programming since the founders took on their first job: adapting the operating system to run on Hitachi's SH-3 processor.
Since then the company has adapted the operating system for other semiconductor companies. Its programmers have helped manufacturers build everything from printers to hand-held scanners that run on Windows CE.
Bsquare also has produced retail software that allows users of hand-held computers to fax, track expenses, print and use the Internet. Those products sell under such names as bFax, bPrint, bTrack and bMobile News.
The biggest profits so far have come from consulting contracts. But, as Bsquare's software is used in more and more computing devices, royalties account for an increasing percentage of revenues.
Devices built with Bsquare's involvement include hand-held consumer computers, Datus' Route-Finder hand-held navigation system, a Data General electronic tablet for medical workers, hand-held industrial computers, electronic security devices and video conferencing equipment.
Bsquare technology also is included in 10 types of "thin clients," inexpensive computer terminals that run programs housed on a Windows NT server. Many companies are using such terminals to reduce the number of costly PCs they buy.
"Bsquare, being so knowledgeable on CE, typically rises to the top," says Tony Barbagallo, a Windows CE group product manager at Microsoft. "If a customer called several different systems integrators, clearly Bsquare's knowledge would come through. . . . They're top tier, if not the top."
But Bsquare's biggest asset - its expertise in Microsoft's new operating system - may also be its greatest vulnerability. The young company's fate is as closely tied to the fate of Windows CE as one company's destiny is ever tied to that of another.
Windows CE - and by extension, Bsquare - is a player in the biggest information appliance markets: gaming devices, Web TVs and hand-held computers. But no one expects Microsoft to get the 80 percent-plus market dominance that it has enjoyed with its desktop Windows systems.
"I'm guessing that there are going to be multiple winners in this thing and that Microsoft will be one of them on almost all of these platforms. And on all of them there will be someone else," says Credit Suisse's Kwatinetz.
Considering that Kwatinetz expects information appliances to sell in the hundreds of millions within a few years, that's still very good news for Bsquare.
Keith Ervin's phone number: 206-515-5632. His e-mail address: kervin@seattletimes.com
-------------------------- The emerging market for information appliances --------------------------
Projected U.S. sales of consumer desktop personal computers
Year Units sold
(in millions)
----------------------------.
1999 12.5
- - - - - - - - - - - - - - .
2000 13.8
- - - - - - - - - - - - - - .
2001 15.0
- - - - - - - - - - - - - - .
2002 16.2
- - - - - - - - - - - - - - .
Projected U.S. sales of consumer information appliances (including hand-held computers, TV set-top Internet devices and gaming devices
Year Units sold
(in millions)
----------------------------.
1999 5.6
- - - - - - - - - - - - - - .
2000 12.2
- - - - - - - - - - - - - - .
2001 18.5
- - - - - - - - - - - - - - .
2002 20.8
- - - - - - - - - - - - - - .
Source: International Data