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Rachel F. Elson
New York

From the San Francisco Examiner

July 28, 1996

From hot shocks to hot stock?

San Jose company hopes to ride popularity of mountain bike suspension system to successful IPO


In the beginning was Mount Tamalpais, and it was good. But Marin County cyclists found that the mountain would not accommodate their bicycles; Mount Tam's trails were rocky, steep and generally abusive to their more delicate road-bike tires and frames. And so these cyclists went to their mountain with sturdy frames and big, chunky tires, and the sport of mountain biking was born.

Fast forward two and a half decades. Mountain bikes have taken off around the world. On Tuesday, the sport will debut as a medal sport in the Olympics. An estimated 70 to 80 percent of the 12 million bicycles sold domestically in 1995 were the off-road species - and everyone wants a bike that is better, faster, more. Enter suspension systems - and Rockshox Inc.

Using a combination of aggressive research and development and marketing savvy, the 7-year-old San Jose-based company has made its shock-absorbing wheel forks an integral part of mountain-bike gear.

"They have total brand recognition," says Bicycling Magazine editor Jim Langley. "You couldn't make a mountain biker happier than to give him a Rockshox sticker. And their stuff works."

That sort of endorsement is exactly what Rockshox principals Paul Turner and Stephen Simons are counting on as they now prepare to take the company public.

Having seen annual sales climb from $6 million in 1991 to $83.5 million last year, Rockshox recently registered a plan with the Securities and Exchange Commission for an initial public offering.

While the number of shares to be offered has not yet been determined, the offering is expected to raise about $68 million, which the company says will be used to pay debts and provide working capital.

Because of the filing, Rockshox has gone into the traditional pre-IPO "quiet period." But industry observers talk readily about the company's promise.

"There's high recognition for the Rockshox name around the world," says Ben Capron, U.S. product manager for Specialized Bicycle Components Inc., which includes Rockshox suspension forks on the front ends of most of its mid-range and high-end mountain bikes. "People do walk into a store and say, "That bike's got Rockshox - I want that one.' "

The clamor, Capron says, is warranted by the gear's performance - and its resulting comfort and control for the rider.

"If you have suspension, the wheel can track over an uneven piece of earth," explains Capron. "The more your tire is in contact with the earth, the more control you have."

As industry-wide sales of mountain bikes have begun to plateau, the comfort issue is increasingly important to manufacturers seeking to expand the market. Suspension forks, says Jackson Lynch, spokesman for Wisconsin bicycle maker Trek, ease the pain involved in barreling over mountain tracks. In doing so, they make the sport more accessible to a less testosterone-laden audience.

"Suspension has really made mountain biking a lot more fun for people who otherwise wouldn't enjoy it," says Lynch.

Most observers credit Rockshox co-founder and vice president of advanced research Turner with the company's leading position in the front-end market. Both Turner and company president Simons came out of the motorcycle industry, and have adapted both the cycle market's technology and the marketing strategy to bicycles.

Industry experts repeatedly cite Rockshox's aggressive research and development and the company's extensive sponsorship and race presence as keys to its success. Through the company's high visibility and technological successes, Turner and his engineers have built a reputation so solid that not even a recall last year seems to have dampened Rockshox's appeal.

Much of Rockshox's business - about two-thirds - comes from bicycle manufacturers like Specialized, GT Bicycles Inc. and Trek that include the Rockshox components in their retail models to capitalize on the company's technology and brand recognition.

However, the market also includes a substantial number of end users who are upgrading their current bicycles with new forks. Store manager Dave Gallagher of the South of Market Start to Finish store estimates that he sells two or three suspension forks a day, most of them Rockshox models.

"Rockshox forks are so popular, so desired," adds Bicycling's Langley. "It's not at all out of the question that someone would buy a $1,000 mountain bike, ride it a while and then decide he's going to get the best available forks for it - and spend another $500 on them."

Meanwhile, according to a research report from Los Angeles-based Jefferies & Company, while mountain bike sales have flattened overall, the industry is becoming more technologically advanced - an outlook that bodes well for high-end component manufacturers.

"The number of mountain bikes sold is leveling off, but that's mostly due to the lower-end bikes," says David Rose, a vice president for equity research for Jefferies. "Cannondale and GT, who are more representative of the upper end of the market, are seeing 20 percent growth. . . . More and more people are going into that segment."

Observers say that in addition to the migration to higher-end bicycles, a number of other trends are expected to propel the suspension market upward - including the dropping price of full-suspension models, the burgeoning European market and the eventual introduction of suspension to the road bike market.

Rockshox created its first product, the RS1, almost eight years ago, and has continued to develop its line of front-suspension forks. Today the company markets 10 different forks, and controls the lion's share of the front-end market.

Its only serious competitor in the front-suspension market is Valencia-based Answer Products. But Answer was dealt a major setback this spring when it had to recall about 50,000 of its Manitou forks - a move that Answer vice president Bob Arnold says probably cost the company a few million dollars in lost sales on top of the fork replacement costs.

Still, the road ahead for Rockshox is by no means level. With the front-suspension market closing in on its saturation point, the mountain bike market is now beginning to move toward full-suspension systems, which incorporate both a front fork and a rear spring unit.

In 1992, there were about 80 models on the market with any kind of suspension; 1996 lines include more than 600 different models. Full-suspension offerings have leapt up from 39 to more than 200 in the last year.

While Rockshox has begun introducing its rear shock units, the company by no means has the leadership position it does in the front-end business, trailing manufacturers like Fox Shocks, Stratos and Noleen.

Business may be picking up, however. Capron is cagey about discussing Specialized's plans for next year's line, but praises Rockshox's new rear shock units. And GT and Trek both say they plan to use at least some Rockshox rear shocks for 1997.

"They were not the first to come out with rear suspension," says GT Product Development Vice President Bill Duehring. "But we use Rockshox front and rear. It's like working with a system rather than with component parts."

From the San Francisco Examiner, Page D 1