Re: Packard Bell should have gotten out of the business a long time ago.
Now is the time. You, devil, you. ;-(
$$$
Packard Bell to Fire as Many as 2,300 Employees, 88% of its U.S. Workforce
By Cesca Antonelli
Tokyo, Nov. 3 (Bloomberg) -- Packard Bell NEC Inc., the struggling personal-computer maker controlled by NEC Corp., said it will fire as much as 88 percent of its U.S. workforce, its chief executive will resign and it will stop selling the Packard Bell brand in the U.S.
Packard Bell will slash its U.S. workforce to 300 or 400 people from 2,600 by the end of first quarter 2000, spokesman Ron Fuchs said. Chief Executive Alain Couder, brought in to turn the troubled PC manufacturer around, will step down, as will other senior members of management, Fuchs said.
Shareholders expected Packard Bell to reduce its losses from $650 million in 1998 to $100 million this year. However, the computer maker is on track to lose $150 million this year, Fuchs said. The company considered other options, including possible mergers, he said.
''Without an extreme repositioning of its product line, success in the consumer market is an extreme challenge, and obviously, one that was just unobtainable,'' Frost Securities analyst Cody Acree said.
Pulling the Plug
Tokyo-based NEC, Japan's No.1 maker of PCs and microchips, is effectively pulling the plug on what proved to be a bad four-year investment in Packard Bell.
NEC warned in June it may have to eliminate further jobs at Packard Bell and even sell or merge it with other U.S. subsidiaries if performance continued to miss targets this year.
Sacramento, California-based Packard Bell, in which NEC spent $225 million in July 1998 to raise its stake to 53 percent, was the biggest drag on NEC's performance in the year ended March 31, as slumping sales and the cost of reorganization at the unprofitable subsidiary caused NEC a record 157.9 billion yen ($1.5 billion) loss.
NEC's cumulative investment in Packard Bell before the July 1998 investment totaled about 150 billion yen.
NEC last year slashed Packard Bell's workforce by half to 3,000, reduced its product range and cut its sales channels by two thirds in a bid to shrink the subsidiary's losses to less than $100 million in calendar 1999.
Yet performance continued to slide through April and May because of intensified price competition in PCs in the U.S., forcing NEC to consider further job losses and selling or merging Packard Bell's operations.
Sacramento Hit
The new job cuts cross all manufacturing and administrative functions and will hit the Sacramento, California, headquarters and factory hardest. Packard Bell employment in Sacramento will fall to 100 workers from 1,600.
Packard Bell, pioneer of the home PC and once the largest U.S. PC maker, will make an announcement this month with NEC about how the remainder of the company will be structured.
Packard Bell will change its emphasis to commercial products, rather than its traditional consumer PCs, Fuchs said, declining to comment further. NEC spokesmen in Tokyo declined to comment on developments at the subsidiary.
That strategy, turning to higher-margin commercial products, makes sense, Frost Securities' Acree said. Packard Bell, one of the first manufacturers to sell cheap PCs, won a huge share of the market, but ''never made any money at it,'' he said.
Since the early 1990s, prices industry-wide have plunged,and competitors such as Compaq Computer Corp. and Dell Computer Corp. began making higher-quality machines in the same price range.
As prices continued to fall, many began to move into other sectors like server computers and workstations to offset the decline. That didn't happen at Packard Bell.
''The Packard Bell brand has really been a declining name for last three to five years,'' Acree said. ''It was a quality issue more than anything else.''
Revenue Falls
Revenue at Packard Bell, fell 28 percent to $2.8 billion in 1998 from $3.897 billion the previous year. Intensified price cutting since April, with low-end PCs selling for as little as $399, made it increasingly tough for Packard Bell to succeed in narrowing its losses this year.
New products, such as the much-touted Z1, a $2,499 PC with a flat-panel monitor, will all be branded under the NEC name in the U.S., Packard Bell said.
''The U.S. brand has been damaged because of quality and service problems three and four years ago,'' Fuchs said. ''We took our eye off the ball, and though we've made substantial improvements, perception doesn't catch up quite as quick.''
The company's European manufacturing operations won't be affected. Fuchs said Packard Bell was the leading brand in both France and the U.K.
Manufacturing workers in the U.S. are on double shifts now to meet Packard Bell orders. Employees were given 60 days notice and severance packages of two weeks' pay plus another week for each year or part of a year worked. Fuchs said the company will host on-site training and job fairs to help employees find new positions elsewhere.
Failing Investment
Packard Bell was founded in 1986 when Beny Alagem and two partners bought rights to the name from Teledyne Corp. NEC first bought a 20 percent stake in Packard Bell in 1995 and increased its stake in the company to 49 percent in July 1996. At the same time, it combined its overseas PC businesses with the unit and renamed the resulting entity Packard Bell NEC Inc.
The aim was to give Packard Bell needed cash and for NEC to get a brand name and increased market share in the U.S., the largest market for PCs. France's Groupe Bull also took a stake.
As PC prices dropped and Packard Bell's business weakened, NEC in June 1998 proposed a plan to assume management of the unit and turn it around rather than write off its investment.
Packard Bell founder and CEO Alagem resigned that month, citing differences with shareholders NEC and Groupe Bull.
Then, in July, NEC went ahead with its $225 million investment, raising its stake to a controlling 53 percent.
In September last year Couder was named president and CEO of Packard Bell and given the job of turning things around. Couder had previously worked for Groupe Bull, International Business Machines Corp. and Hewlett-Packard Co.
NEC took an 80 billion yen charge in the year ended March 31
to cover the cost of reorganization at the subsidiary. Packard
Bell's sales were reflected in NEC's group results for the first
time in that period.
NEC shares yesterday fell 106 yen, or 5.1 percent, to 1,984 on a report the company faces a class-action lawsuit charging it made defective computer chips. Today is a national holiday in Japan.
|
