Captain Dirk of Xircom

Tim Jackson takes a look at the latest brainwave from a garage entrepreneur who has made it his business to network PCs

Conventional wisdom has it that the computer industry's Apple days are over - that the business is now too mature for young entrepreneurs to set up businesses in their garages that turn into giant companies a few years down the line. But the story of Dirk Gates disproves that view. Xircom, the company he started in 1988 at the age of 27 with a friend, is likely to turn over about $160m (£100m) this year - and to grow into a billion-dollar business five years from now. As it does so, Xircom may also revolutionise the way many of us work.

Xircom was founded to exploit two important business trends: mobile computing, and networking. Portables and notebooks have liberated the PC from being chained to the office desk, so that workers who need to use computers can do so throughout their working day. Networks, by contrast, allow individuals inside an organisation to exchange information much more easily. Not only can they send instant, zero-cost electronic mail to each other, they can also reduce the paper that flows around their offices by sending each other documents electronically, and share up-to-the-minute information such as budgets and sales forecasts.

In 1988, however, these two trends were almost mutually incompatible. Although miniaturisation was galloping ahead, the new notebook computers that came out in 1988 could not easily be linked into networks. The least unwieldy way of doing so was to attach the portable PC to a toaster-sized box that gave it network compatibility. The only alternative was to slot the notebook into a "docking station" that turned it, for all intents and purposes, into a desktop.

Dirk Gates was working as an engineer designing industrial controls when he started to think seriously about this problem. Talking to a friend, Kirk Mathews, he came to the conclusion that there was a business opportunity in making portable computers mobile, and quit his job in order to take advantage of it. The two men mortgaged their houses, borrowed from relatives, and spent a number of months developing a new invention - a tiny adaptor that could be plugged into the printer port at the back of a notebook PC, thus wiring it into a network.

There was just one problem. The two men were well versed in both software and hardware, but neither had any formal business experience. So Gates - no relation of the Microsoft chairman, Bill Gates - decided to study for an MBA at a local college by night, while working at his fledgling company during the day. As the course progressed, Xircom became a real- life case study for Gates and his fellow-students.

All Gates knew at the outset was that he and his partner would need to sell about 200 units a month to break even. This he intended to do by buying advertisements in the computer press. Everything but designing the new gadget would be subcontracted to other companies, from manufacturing it to designing and printing the brochures.

By spring 1989, Xircom was ready to exhibit its new product at the Comdex industry show in Chicago. It was only at the show that Gates realised he would need to sell through distributors and retailers - and perhaps also on an original equipment manufacturer (OEM) basis, meaning that Xircom would sell bulk orders of its network adaptor s to other companies which would sell them on under their own name.

The adaptor was a hit. It aroused interest among dozens of distributors, in particular Marc Devis, a Belgian who specialised in importing high- technology products from the US and selling them at high margins in his home market. He bought up Xircom's entire stock of 300 units and soon became managing director of a European arm of Xircom.

Although other companies saw the neatness of Xircom's network adaptor and began to develop their own, the new company managed to dominate its market. By the end of its second year, it had racked up sales of $10m - and accounted for over 80 per cent of the market for network adaptor s for portables.

Two years ago, however, Xircom began to face a threat from changing technology. Leading companies in the industry began to negotiate a set of standards that would allow credit-card sized gadgets to be connected to PCs through a standard interface known as PCMCIA. The old parallel-port adaptor was doomed. "We decided that if someone was going to reinvent our business," Gates says, "it had better be us."

Xircom has managed to stay abreast of the competition. Its new card- based products still dominate the market - and the company has recently developed a new gadget to take account of growing demand from "road warriors" for a card that could be used out of the office as well as in It can connect a portable PC to a local-area network at headquarters, while doubling as a modem so that the same computer can communicate via the telephone from farther away.

But it is Xircom's latest product that could well revolutionise the use of computers in offices. The company has just brought out a new kind of network link for portable computers that uses no wires at all. Instead of plugging in, it connects the PC to the company network by a sophisticated microwave radio.

Netwave, as the new product is called, consists of a base station about the size of an answering machine and a radio receiver and transmitter squeezed inside a PCMCIA card. When the card is inserted in the portable PC, a small plastic blob, half the size of a box of restaurant matches, protrudes from the side. This contains the antenna.

The base station and the card communicate by microwave radio signals, which have a maximum range of about 50 metres. They broadcast at around 2.4 gigahertz, the frequency used by microwave ovens. To prevent interference, and to allow up to 10 portable computers to exchange data with the network through the same base station, the communication "hops" every 10th of a second across 78 different frequencies - so the speed and reliability of data transfer is hardly affected even if there is interference. The radios used are very low in power, about 50 milliwatts, compared with more than 10 times that for the average mobile phone, and 20 times that for the leakage allowed by law from microwave ovens.

At about $500 per user, this system could revolutionise office computing. It could mean the end of managers keeping one computer on their desks and a portable for moving around. It could also radically speed up communication inside companies, for workers will be more likely to respond to electronic mail messages one by one as they come in than to deal with them in a pile at the beginning or end of the working day.

The computer is only one possible application for Netwave technology. Wireless data communication could also make cash registers and smart stock control equipment in supermarkets far more flexible and useful. It could allow warehouses to admit and send out goods more quickly, and could help doctors to carry up-to-date information on all their patients as they walk around hospital wards.

As the applications widen, other companies are certain to start competing with Xircom. But if the company's growth so far is any guide, Dirk Gates and his colleagues seem set to retain a respectable slice of what could soon be a large industry. Garage entrepreneurship dead? Don't bet on it.