| BUSINESSWEEK ONLINE : JUNE 28, 1999 ISSUE | ||||||||
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| NEWS: ANALYSIS & COMMENTARY
Packard Bell NEC Hits the Restart Button The Japanese parent threatens to close its U.S. subsidiary Since he took the helm of PC maker Packard Bell NEC Inc. a year ago, dealing with disaster has become no big deal for Alain Couder. He's had to lay off 40% of the company and cut its home PC product line from 36 models to six. So when NEC President Koji Nishigaki said on June 2 that majority shareholder NEC Corp. might be forced to sell or close the Sacramento-based subsidiary, Couder remained calm. ''If I were [Nishigaki], I'd have said the same thing,'' a staffer recalls Couder telling managers later that day. ''The reality is that we have a long way to go.'' That's for sure. Packard Bell NEC has literally bled market share (chart) and red ink--$1.5 billion over the past three years. Packard Bell, with which the Japanese electronics giant merged its U.S. PC operations in a $300 million deal in 1996, has been in free fall. It pioneered the low-cost home-PC market but has fallen far behind IBM (IBM), Compaq Computer (CPQ), and Hewlett-Packard (HWP) in the fast-growing consumer market. A SIMPLE PLAN. Couder, however, has a recovery plan--a high-risk brand transplant. The goal: Downplay the tarnished Packard Bell label while building the more highly regarded NEC brand into a seller of pricier PCs and information appliances. Step one, unveiled on June 17, is the Z1, a slick model featuring a flat-panel display and a $2,495 price tag. The $1,000, 15-inch display is removable and can be snapped into a future NEC model. ''This is the first of a series of innovative products, and all will be sold under the NEC brand,'' says Couder. He insists that the Packard Bell name will survive to fight it out in cut-throat low-end markets, but analysts say the brand's days are numbered. ''They should kill it, and I think they will,'' says ZD InfoBeads analyst Matt Sargent. By itself, the Z1 won't be enough to lift PB-NEC's fortunes. Given its high price and tight supplies of large-format flat screens, Couder only plans to produce 100,000 or so Z1s in the first year. But he has other models on the way. In September, the company will roll out a line of PCs--without flat panels, but with a design that echoes the look of the Z1. And by yearend, it will unveil its first information appliances, a PC-like box for E-mail and surfing the Web. Early next year, it will follow up with a stereo-like gizmo that hooks up to television sets. Both of these products will have connections to PB-NEC's new Internet service and portal, URocket, which debuted on June 8. It's a hugely risky plan, and PB-NEC's survival lies in the balance. It is dangerous because the move to pricier models flies in the face of a tidal wave of demand for sub-$1,000 PCs. And there are already more than enough companies competing for the small cohort of buyers willing to pay $2,000-pus for a PC. Gateway Inc. and Compaq Computer Corp. both unveiled flat-panel-based models in this range in June. What's more, Couder is now working with no safety net. While NEC, which owns 88.32% of the company, covered $670 million in losses over the past year, Couder is now under orders to reduce losses to less than $100 million in 1999. If he fails, NEC could well pull the plug on PB-NEC's consumer effort, and take over the remaining corporate PC operation which NEC is determined to keep going. After a disastrous attempt to emulate Dell Computer's direct sales model in 1997, that unit is gaining share with small and mid-size companies, says Jeffrey L. Cookes. The consumer business, on the other hand, has run out of second chances. The Japanese parent lost $1.3 billion on a 2.9% drop in sales in fiscal 1998, and ''President Nishigaki has made it clear that NEC will not refinance Packard Bell'' again, says Yoshiharu Izumi, director of equity research at Warburg Dillon Read in Tokyo. Can Couder pull it off? He has done a lot already. He cut operating expenses 42% since he arrived, and sales of NEC branded PCs are bringing in 60% of revenues, up from 50% a year ago. And the Z1 should create some excitement, say analysts. Still, PB-NEC will require far more luck than it is likely to get. Indeed, after meeting its internal plans in the first quarter, the company missed its profit target by more than 20% in May. Couder insists that's no big deal and says NEC gave him ''full assurances'' of its support. Indeed, the parent company gave him a letter of recognition for its efforts in January. But if his high-risk plan doesn't pan out, Couder will have finally met the disaster from which even he couldn't recover. By Peter Burrows in San Mateo, Calif., with Irene Kunii in Tokyo _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Packard Bell NEC Hits the Restart Button CHART: NEC Products Lose Share in the U.S. PHOTO: NEC Z1 INTERACT E-Mail to Business Week Online | |||
