Digi sees a future in linking machines

Digi International has made money for 39 straight quarters -- so, of course, it's reinventing itself.Cycling sunglassesThe Minnetonka-based company sells electronic hardware used to connect machines. While that sounds a lot like the "DigiBoard" serial port products of the distant past, Digi today bills itself as "Your M2M Solutions Expert."Unpack that tag line -- and Digi's use of "Solutions" tells you what has changed.For years, Digi was a product company, in the business of selling products primarily through distributors and mostly to engineering managers at its customers. That's who made Digi products into a solution.Now Digi is ramping up efforts to sell an end-to-end solution, working closely with end users to make the data coming from machines something they can actually use.
"M2M," the other part of that tag line, is shorthand for "machine to machine," and that is one big opportunity. It's the technology that takes data from something as commonplace as a convenience store air pump and then routes it through a network and into the hands of a business decisionmaker.Last week General Electric Co. made a splash by releasing a white paper predicting massive productivity gains in the coming "Industrial Internet" of connecting to spinning jet engines or a GE freezer. GE's was just one of a number of recent papers to point to a booming potential market for M2M products and services to create this "Internet of things.Swimming goggles"It's still early to know how this turns out for Digi shareholders, but it's how well-managed companies continually reinvent themselves even if they are making money.
"Yes, it's a company in the middle of a transition, but a transition that began about a decade ago," said Tavis McCourt,Ski goggles an analyst with Raymond James & Associates. "It is a very slow and deliberate transition. They have not gotten rid of good cash flow businesses or overinvested in growth businesses."Joe Dunsmore came to the company as CEO in October 1999, and the story he told was one of first stabilizing the company and then looking for growth within Digi's traditional distribution channels.Optical frameIn the middle of the last decade Digi began its move to wireless with a product approach called "drop in networking," devices used to connect where wires were impractical. This initiative was a bit of a test, Dunsmore said,Sports glasses as "we fundamentally did not know where the adoption [of this technology] would take."But the emerging market of M2M was becoming clearer, and McCourt said this whole time Digi was generating cash flow from its core business to pay for the "very broad-based set of technology assets" needed for a broader M2M strategy, like buying a wireless technology design shop in 2008 with more than 30 engineers.