The man who wants to shrink the world

Dirk Gates has a vision - a computer in every briefcase. Stephen Pritchard talks to the founder and CEO of Xircom.

For Dirk Gates the future of computing is mobile. Desktop computers will give way to portables, as laptops become more capable. The computer will be something we carry with us, in the office, at home, on the road, or even in school.

According to Gates, that point is very close indeed. Portable computers match desktops in power and facilities. Until recently, portable computer chips lagged at least a year behind desktop processors in speed. Now, both Intel and Motorola bring out low-power, portable processors soon after desktop chips. Flat screen displays are bigger and brighter than ever before, and battery technology is at a point where even a high-performance laptop will run for several hours on its own power.

The one barrier, Gates concedes, is price. A top of the range portable PC costs perhaps a third as much again as a desktop computer. For businesses, though, that should not be a drawback. He cites statistics showing that laptop users work on average four hours a week longer than their desk- bound colleagues. No more wasted hours in hotel rooms, airport lounges or on trains.

Since 1988, Dirk Gates's business has been connecting laptops together. He co-founded Xircom in California as a 27-year-old electronics graduate. Its first product was the Pocket Ethernet adapter, a device that plugged into a laptop's printer port to connect to the office network. Then, laptops were used mostly by people such as field engineers or sales teams, who spent much of their time on the road. Pocket Ethernet meant they could continue to use their portables and connect to the network when they did visit the office.

Gates used to own three computers: a desktop computer at home and in the office, with a laptop just for travelling. Now, he has a single computer, an IBM Thinkpad. He says he feels more productive and better organised for it. "Trying to live with more than one machine is a pain," Gates admits. "It costs a lot less than having two machines, and with one, you have everything with you, wherever you go.

"Once a decade the platform becomes smaller and more personal," he says, citing the move from mainframe computers to PCs. "In the Nineties, the platform is becoming the notebook PC. Once we reached the PC, networking became more pervasive. Now we have very small, mobile computers."

Gates's first customers were the early adopters of notebooks: companies with highly mobile workforces, such as audit teams from the large accountancy practices, or engineers. Typically, they used a modem to contact the office from the road. Pocket Ethernet solved the connection problem in the office.

Towards the end of the Eighties, Xircom dominated the laptop Ethernet market. Pocket Ethernet had an 80 per cent share, and the company enjoyed gross margins of over 50 per cent. Then the industry introduced the PCMCIA card. Until then, there was no standard way to add hardware to a laptop. Devices like Pocket Ethernet worked but were cumbersome.

PCMCIA brought expansion on to neat, credit-card sized adapters. Xircom had to decide whether to fight to preserve its existing solutions, or move into PCMCIA. As it was an open standard, the PCMCIA market was likely to be larger, but far more competitive. Gates faced seeing margins fall to about a third. "We had to become much more efficient on the manufacturing side," he admits.

Now, Gates sees the market dominated by just two players: Xircom and 3Com. Other manufacturers have either pulled out, or farmed out production. Some 20 per cent of Xircom's products are made for other manufacturers.

PCMCIA did give Xircom the chance to broaden its product range. It added modems, and now sells ISDN and mobile phone cards, too. About a third of sales are combination cards.

Gates is not tempted, though, to venture into other hardware areas. PCMCIA supports hard disks, digital cameras, audio digitising and even pagers, but this does not interest him. "We are focused on communications, and we believe that focus is valid," he says. "All other hardware can be sucked inside the PC. Communications is very different: it is an increasingly extended set of options, depending on your bandwidth: 56K, ISDN, GSM. Communications will remain an option for a long time."

Instead, he sees portable computing as the growth market. Companies will start to replace desktop computers with fleets of laptops; schools and colleges will turn to portable computers as a flexible learning resource. Economies of scale mean costs will come down.

Prices will fall, too, as LCD screens for desktop computers become more popular. Already, portable computers are among the industry's fastest- growing sectors. For Xircom, this is a huge source of potential business: Gates expects to see sales grow from 11 million to 30.9 million cards by the year 2000. This represents an average of 1.5 cards per computer. By then, 70 per cent of cards will be the combined modem and LAN adapters. "This shows the transition from the notebook as a mobile-only tool to replacing desktop PCs," says Gates.

For Xircom, though, a revolution in the office might not be enough. Home computer sales are outpacing office PCs, but few home users opt for laptops. Xircom needs computers to use the PCMCIA standard, which it makes, rather than the desktop PCI or ISA slots, which it does not supply - to gain inroads into the sitting-room.

Some manufacturers of set-top Internet boxes have turned to PCMCIA for expansion and network interfaces, not least because it is easy to install and uses little electrical power. This presents an opportunity for companies such as Xircom. Gates is unwilling to make predictions about the future of high bandwidth communications into the home, with the debate between ISDN, cable modems, and DSL (digital subscriber line), but he believes higher speed connections will come.

Computer use in schools, Gates predicts, will be the other driver. "Kids come home and say they will be left behind without a PC. In the future, as kids get older, the PC of choice will be a notebook." Schools will not want networks of computers tied to classrooms, but machines that move with the pupils.

Families will follow where schools lead. "The PC at home is where the TV was 30 years ago," he says. "Today, there is a PC in a small fraction of households, and everybody is fighting over the mouse. Now computers are finding their way into home offices. When they become mainstream, they will not be in a dedicated room, but used on the sofa or a kid's bedroom. The form factor will be a notebook."