Q1. Hirsch is a leading participant in the access control market. Given this, what do you consider as the growing/emerging opportunities in this industry and how does Hirsch intend to capture these opportunities?

Larry Midland

A1. We at Hirsch believe there are two mega-trends that will shape the future of access control. One is "Interoperability" and the other is "Smart Cards."

Interoperability is fast becoming the solution of choice to marry disparate technologies within a business enterprise. Examples include populating and de-populating the access control system from the HR database; tying computer access to actual physical presence within the building; sending an alarm to a cell-phone; notifying the air conditioning/heating system of after hours activities that require services, etc.

Hirsch has been a leader in this initiative, and our Professional Services Group has already delivered numerous solutions to customers. Through the use of our IDK™, Interoperability Development Kit, we are able to either fulfill a contract for the end solutions, or guide our customers to develop their own.

The second initiative involves the use of smart cards, essentially a computer chip on a card. These cards can carry significant amounts of data. They are being mandated by the federal government to tighten security in all government facilities by requiring two-factor and even three-factor identification. Part of the data stored on the card will include a biometric template (e.g., fingerprint, etc.) that will be unlocked by use of a PIN (personal identification number). Therefore gaining entrance to an area can require something you know (the PIN), something you have (the card) and something you are (the biometric). This increased security also has a place in the corporate environment, and the devices that are manufactured for the government will find their way into the general business world.

Hirsch is well positioned to profit from the move to smart cards. Our customer base within the government arena gives us great credibility within that sector. We have been working closely with the various agencies to provide workable solutions to accomplish their goals. We have offered two-factor and three-factor solutions for a number of years, and we intend to continue to deliver the solutions our customers require.

Q2. What do you consider are your key business differentiators and how have they given you an edge over competition?

A2. Most access control companies grew up around the concept of card access. Since these companies focused on performing some action when a specific card was read, they overlooked the need for control functions. Hirsch, on the other hand, started life using its patented electronic keypad (ScramblePad®) as the input device. Since the systems were code based, the keypad could be used as a true data entry device. Therefore, we developed substantial capabilities that don’t exist in conventional access control. Once we added card reader capability, we married the two technologies into very powerful products.

Another differentiator is our high security focus. Few, if any, companies offer as secure a solution. We design and build the hardware in-house, rather than buy an OEM board with published protocols. We also develop the software and firmware in-house. And our products offer the built in high security technologies and features that high risk sites require, such as encryption, door interlock applications, 2-person rule, and threat levels, just to name a few. The system is highly customizable to perform just about any function the customer desires.

Perhaps the most important Hirsch differentiator is reliability, because you don’t have a secure facility if the system goes down. We engineered our products to be extremely robust, with mean-time-between-failure rates which are well beyond industry standards.

We focused on delivering high security capabilities coupled with highly reliable products. This has given us the reputation of providing high security solutions while still providing a low overall cost of ownership.

Q3. What are some of the key changes in the industry that Hirsch has witnessed over the past year? How has the company aligned itself to reflect these changes?

A3. The key change over the last year was the first initiative I identified above, i.e. the need to have various building and management systems interoperate. We believe in riding that wave and have positioned ourselves to be a leader. There are many interesting applications, so we believe we have only scratched the surface with our Professional Services Group. We intend to expand that effort to meet the requirements of our customers.

Q4. What in your opinion are some of the key technology trends in the industry? How do you think they will shape tomorrow’s authentication industry growth?

A4. After many years of hype, it appears that smart cards and biometrics will finally become a real force. The interesting thing is that it took the combination of the two technologies to really reach critical mass. Biometrics for access control is all about comparing the biometric read to a representation of the biometric (a template) previously stored in a database. Searching a database for a biometric template on a "one to many" basis has been a challenge to perform quickly and economically. However, comparing the biometric of an individual to a single template carried within a smart card is realistic.

The other technology trend is in the communications world. Data needs to be encrypted along every path, and access control systems must be able to reside on the corporate LAN and communicate via TCP/IP. We have just introduced our new Secure Network Interface Board that handles both of those functions. Not only is the path from the computer to the controller encrypted, but the path between each controller is also encrypted. The first adopters of this technology have been the government agencies and defense contractors, but it will spread to the corporate sector because of the fast growing need to protect information.

The second part of your question shows that you recognize a critical shift that is coming about in the access control industry. You use the word authentication, which is a relatively new concept in our industry. Authentication goes beyond the identification and authorization of the past. Now we’re talking about authenticating that you really are who your identification says you are BEFORE granting you authorization to gain access to physical space.

This process will be sorted out over the next few years, but it means that more and more access control applications will be in the "high security" environment. That can only be good for Hirsch because that’s our expertise.

Q5. What are some of the major challenges specific to Hirsch in the industry today and how do you overcome them? What are Hirsch’s strengths and core competencies that have allowed it to remain successful even in difficult market conditions?

A5. Most of the challenges in our industry affect everyone within the industry. Perhaps one that affects us and some of our smaller competitors is the consolidation that has gone on over the past several years. This has the negative effect of making us compete with giant corporations, but the positive aspect of that is we get a chance to distinguish ourselves from them at the same time. Being a middle-market company, we obviously don’t have the massive resources of the giants. However, we also don’t have the bureaucracy and are able to move much more quickly. Also, because we have some unique products, most of the giants are also our customers because they need to satisfy the requirements of their customers.

Most people would say that our strength and core competencies are in the rich feature set and reliability of our products. While that of course is important, I feel that our people are just as important. We consider our product more than just what you take out of the box. We feel that training, documentation, sales assistance, technical support, and delivering product in a timely manner are all part of the Hirsch experience. We attempt to build strong relationships, and feel that those relationships even transcend the product offering.

Q6. What are the technologies or offerings that are missing in your portfolio today that you might look for in an acquisitions candidate? Are there any specific plans in terms of additional acquisitions?

A6. Technologies are always evolving, so there will always be opportunities for acquisitions. I don’t see a glaring hole in our offering, but we’re always on the lookout for the next big wave. We have the advantage that we can interface with virtually any input device, so our current offering makes it easy to change technologies at will. We have customers who have migrated from code only to card plus code. Some have even moved to card plus code plus biometric. And this was done without replacing their existing Hirsch equipment.

We are looking at potential acquisitions, but often for reasons other than technology. There are always different channels, and those are what interest us the most right now.

Q7. How have regulations in your industry impacted your business?

A7. The regulations in our industry have been fairly benign. It’s regulations in other areas that are impacting our business in a positive way. The whole move toward corporate governance means companies must secure data and know "who went where and when." That is the basis of access control, and I think the industry will see major growth because of that. Also the government authentication initiative will open up many opportunities.

Q8a. Are there currently any new emerging markets or technologies that you feel you have identified as having potential for growth?

A8a. We are a private company, and one of the benefits of that is we don’t need to disclose everything we do. We have identified some emerging markets and technologies, but I don’t feel it is to our advantage to disclose them. I’ve mentioned some that are obvious and hope you’ll understand that information beyond this should remain private.

Q8b. Are there currently any new, emerging technologies that you would consider to be potentially disruptive to your company’s growth initiatives?

A8b. It isn’t really technologies that are potentially disruptive as much as technology perceptions. We are a society obsessed with faster, smaller, and cheaper. That generally works best in the consumer world where volumes are high and support requirements are low. Our biggest threat is that customers will shop only on price and the latest technology. Access control systems are long-term investments, and the proper criterion is long-term total cost of an effective, installed system. The technologies we employ in our controllers can’t be flash-in-the-pan technologies. Reliability and sustainability are very important factors. In the faster, smaller, cheaper world, decisions are made based upon products that are essentially obsolete when you buy them. Access control systems must be evaluated based upon the ramifications of a decades-long investment.