Union Pacific Gets Back on Track - ' Dot'
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Dot-Com Dreams
Maybe. But one recent development is raising renewed concerns that no matter how much a railroad tries to shed its old culture, the constraints of its business model may make this impossible.
As an outgrowth of the increasing emphasis on technology, in mid-2000 Union Pacific created a holding company called Fenix to manage four separate business units whose main product lines were a portfolio of UP-developed communications networks and applications: work force management programs, supply chain and logistics software, wireless data products for remote computing, and broadband mobile and fiber-optic telecommunications. The idea was that the subsidiary would sell these products and services to railroads as well as companies in other industries such as trucking, mining and heavy construction.
To give Fenix its bona fides, Osmo Hautanen, a top executive at Nokia, was hired as CEO, and he immediately put on the agenda a plan to take the company public—a move that would both capitalize on the dot-com IPO boom and burnish Union Pacific's name as a technology player. But none of this happened. The technology crash ended any hopes of selling Fenix's shares on the open market, and the recession limited the number of takers for Fenix's products. In 2001, according to UP's annual report, operating revenue in the company's "other product lines," which includes Fenix, was $4 million less than the year before, while operating expenses had risen by $6 million "due to increased spending at Fenix to develop new products and services." Unable to sustain these operating losses, Union Pacific scaled back its own investment in the company. Ekanet, the telecommunications unit of Fenix, was shelved in the middle of last year, and Hautanen left the company at the end of 2001. In May, Fenix fired most of its remaining employees, leaving the holding company little more than a shell.
"With capital markets drying up, we couldn't sell as many products as we had hoped and couldn't keep the companies at the sizes they were," says Charley Eisele, senior vice president of strategic planning at Union Pacific and a member of Fenix's board. "We've basically refocused the companies on creating positive earnings and cash flow."
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