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Zenith Data, Act Ii: Enter New Chief, Swinging


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ZENITH DATA, ACT II: ENTER NEW CHIEF, SWINGING

In the mid-1980s, Zenith Data Systems Corp. was nothing if not nimble. In 1984, when college bookstores balked at selling its personal computers, ZDS gave the job to fraternity houses, and its PCs soon became big sellers on campus. In 1985, the company's jackrabbit-hop into battery-powered laptop PC clones--a year ahead of Japan's Toshiba Corp.--helped it grab an impressive 23% share of the business by 1988. ZDS even outwitted mighty IBM. Because ZDS geared its machines to government specifications, it snared Air Force and Internal Revenue Service megadeals that had been widely expected to go to Big Blue.

But as the decade wound down, so did the Buffalo Grove (Ill.) company's fancy footwork. In 1989, its first spiral-notebook-size PC proved a dud, because it came with an unusual 2-inch floppy disk drive instead of the standard 3.5-inch version. That same year, ZDS lost a $750 million military contract for desktop PCs to an aggressive bid by Unisys Corp. And a new distribution policy, designed to boost sales of desktops by requiring laptop dealers also to sell ZDS's unpopular office-bound PCs backfired. More than 1,000 dealers, including big chains such as Computerland Corp., simply dropped ZDS's computers altogether.

FIGHTING BACK. The final blow came in December, 1989, when parent Zenith Electronics Corp., battered by losses in consumer electronics, unloaded ZDS for $511 million to French computer maker Groupe Bull. In the upheaval that followed, ZDS's product development efforts waned, and sales fell. In 1990, revenues amounted to just $1.2 billion, down from $1.4 billion in 1988. Worse, the company slipped from its No. 1 ranking in laptops to No. 3, behind Toshiba and Compaq Computer Corp. (table).

Now, ZDS is fighting back. In January, Bull named Enrico Pesatori, a dapper former Olivetti computer executive, as CEO of ZDS. Pesatori is charged with more than revitalizing ZDS: The $6 billion Bull is counting on its U. S. subsidiary to lead it away from the sagging minicomputer and mainframe markets. Pesatori may not have much time. Bull last year lost $1.2 billion, and its share of the U. S. market is negligible. So Pesatori has moved quickly. And after five months on the job, he is about to face his first big test. On May 20, ZDS plans to announce two new desktops and a whole new line of laptops (table).

Pesatori, 50, is no slouch at revitalizing troubled businesses. In the 1970s, when Olivetti's mechanical-calculator business was hurt by competitors' moves into electronic calculators, hedeparted from Olivetti tradition andsubcontracted theproduction of parts on new models. That sped Olivetti into the electronic-calculatorarena. "Pesatori knows what has tobe done and doesit," says GianCarlo Bisone, Compaq vice-president for European marketing and a colleague from Pesatori's Olivetti days. At ZDS, Pesatori wasted no time. In his first month on the job, he struck down the rule requiring dealers to carry ZDS desktops. To lure stores back, he sweetened incentives for dealers to add ZDS products. And he has nixed five questionable research and development projects, including work on a 9-pound laptop. His plan: Accelerate product introductions by devoting more resources to fewer projects. "A company like ours should be able to make very quick decisions," Pesatori says.

To make sure ZDS doesn't fall behind in technology, Pesatori has put a new engineering group in Santa Clara, Calif.--the heart of PC country--instead of in ZDS's exurban Chicago research labs. And, he says, the company's 1992 PC line will have a new look, thanks to assistance from frogdesign, the big-name industrial designer that created the look of Apple Computer Inc.'s Macintosh and NeXT Inc.'s workstations.

MORE GLITZ. Already, computer dealers are giving ZDS a second chance. Computerland, for instance, has agreed to carry the new laptops, which could bring 330 dealers back into the ZDS fold. "We're favorably impressed with their new plan," says Edward Michelson, vice-president for marketing at Computerland of San Diego, a two-store franchise. And PC Warehouse, a Maywood (N. J.) retail chain, put ZDS laptops in its 65 stores this month. President Robin Lu says customer interest in ZDS hasn't waned: "The name is still worth it." By the end of the year, ZDS expects to have 1,000 dealers signed on--double the number it had in January.

But distribution alone won't turn the clock back for ZDS. The company's big challenge now is to persuade buyers to choose its laptops over those sold by dozens of competitors. For that, Pesatori will rely on aggressive pricing and glitzy new technology. Its $3,999 MastersPort 386SX notebook, for instance, will sell for $800 less than what Compaq charges for a comparable machine--even after recent price cuts. Its MastersPort 386SL uses a low-power microprocessor and a custom disk drive, so the machine runs for up to eight hours between battery charges. Most laptops run about three hours.

The new products should let ZDS hold steady this year at No. 3 in laptops, predicts Peter Teige, an analyst at market researcher InfoCorp. "This really gets them back on track," he says. An order from Metropolitan Life Insurance Co. will help--it plans to buy thousands of ZDS notebooks for its sales force.

Still, ZDS could slip further. One factor is NEC Corp., the current No. 4. Analysts say it plans to introduce a long-life machine of its own this year. "I don't think Zenith will be lonesome in that category," says Richard V. Miller, an NEC Technologies Inc. vice-president.

Even Pesatori concedes that ZDS will do well just to hold its own in 1991. The big surge, he believes, will come in 1992, when he ships those "frogdesigned"laptops. "We'll increase our sharenext year," Pesatori vows. At this point, taking things one step at a time may work better than a lot of fancy footwork.Gary McWilliams in Boston, with bureau reports


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