Everex Systems, Inc.

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Everex Systems, Inc.

48431 Milmont Drive
Fremont, California 94538
U.S.A.
(510) 498-1111
Fax: (510) 651-0728

Wholly Owned Subsidiary of Formosa Plastics Group
(Taiwan)
Incorporated: 1983 as Everex Systems, Inc.
Employees: 900
Sales: $503 million (1992; purchased by Formosa in 1993)
SICs: 3571 Electronic Computers; 3577 Computer Peripheral Equipment, Not Elsewhere Classified

Headquartered in Fremont, California, Everex Systems Inc. designs and manufactures Pentium-based computer systems, multimedia systems, and related peripheral devices. Everex grew quickly during the late 1980s before filing for bankruptcy in the early 1990s. The company was purchased in 1993 by Formosa Plastics Group, the $14 billion multinational conglomerate controlled by Taiwan’s Wang family.

Seeds of Success: The Young Founder

Everex was created by Steve Hui (pronounced hoy), an engineer, entrepreneur, and son of a former Chinese peasant. It was Hui’s father, P. S., who gave him the determination to succeed. P. S. Hui had left his small village when he was 13 years old because his parents could no longer afford to support him and his brother. The brothers were sent to a city, where they eked out a living washing clothes and became involved in the Seventh Day Adventist Church. P. S. struggled to qualify for one of the handful of scholarships offered by the church, and was able to attend a Chinese university. He became a surgeon and, because of exemplary service during the Korean War, was one of the few Chinese allowed to relocate to Hong Kong after the conflict.

Steve Hui would later attribute his discipline and drive to the example set by his father. Hui was able to attend college in the United States, where he earned his mechanical engineering degree at the University of Texas. He worked in the oil-testing division of Schlumberger for a few years before moving back to Hong Kong, where he married his high school sweetheart and took a job with a Chinese electronics company. A few years later he won a scholarship to the University of California Berkeley. He moved back to the United States to get a bachelors degree in electrical engineering and a masters degree in mechanical engineering. To make ends meet during school, his wife sold some of her family heirlooms. After graduating, he worked a few years at Amdahl Corp. and Storage Technology Computer Research before deciding in the early 1980s to strike out on his own.

Hui was determined to make his mark, and he believed that building his own electronics company was the way to do it. Specifically, he believed that the burgeoning personal computer (PC) industry offered much potential and complemented his background. Desktop personal computers were just beginning to penetrate the mass market at the time, and sales of IBM-compatible machines were growing. So Hui designed, built, and began to market his own IBM-compatible PC, a clone of the popular IBM AT computer. PC sales soared during the mid-1980s and Hui emerged as one of the leading producers of IBM-compatible PCs in the United States.

Hui’s early efforts were funded through contacts in his native Hong Kong. While working for the Chinese electronics firm during the mid-1970s he had sold an automatic printing circuit board etching system to a mid-size Hong Kong electronics firm. The company was owned by the Wong family. The sale was important because it was one of the first systems of its type to be installed in the country. Hui initially had trouble getting the system to operate, but he parlayed the problems into a positive relationship with the Wongs. “We couldn’t get it to run properly. By the second week I felt so terrible. And it got worse,” Hui recalled in the Business Journal-San Jose. “The old man of the Wong family was so nice to me.” In fact, the Wongs offered Hui a job after he installed the system.

The Startup

It was to the Wongs that Hui turned for help in getting his company started. With their assistance, he was able to round up about $300,000 in startup capital. He used that cash to develop and start marketing his first PC. Hui incorporated the venture in 1983 as Everex Systems, Inc., choosing the name Everex to indicate “forever excellent”. He was joined by cofounders John Lee and Wayne Cheung. The company initially found success selling its computers to resellers, which marketed the systems primarily through mail-order channels under their own brand name. Sales quickly climbed into the tens of millions of dollars. Hui drew from that success to branch out into the sale of peripheral devices that integrated Everex’s proprietary controller boards, which acted as the brains of the devices. By 1986 the company was generating revenues of $63 million annually, about $3.6 million of which was netted as income.

From the start, Hui chose to model his venture after successful U.S. companies. For example, he had learned from his American classmates that they didn’t like to work for Chinese-run businesses because they were typically family-oriented. So Hui chose not to hire any family members to help him manage the company. He also styled the company’s headquarters after those of early Silicon Valley enterprises; the office was basically one giant room without walls, with desks pushed close together and the top executives, including Hui, sitting with the rest of the employees. The goal was to create an atmosphere of open communication, teamwork, and excitement. That atmosphere became increasingly important as the company’s work force swelled, from less than 300 in 1985 to more than 1,000 in 1987, and later to more than 2,000.

Hui’s savvy management strategy combined with a surging PC market propelled rampant growth at Everex throughout the mid-1980s and into the late 1980s. By mid-1987 Everex was selling its IBM-compatible PC systems through a network of “satellite” retailers that marketed the systems through mail order under a dozen different brand names. Those retailers were shipping thousands of computers every week. Furthermore, Hui had carved a profitable niche in the expanding peripherals market, selling a broad line of computer peripherals that incorporated Everex’s controllers. Going into 1988, Everex was selling a total of more than 30 different products, including tape-backup systems and hard disks. In tape back-up systems, in fact, Everex had become the global leader with more than 50 percent of the world market.

Because its products were marketed under different brand names, Everex, despite its notable presence in the PC industry, was relatively unknown to most consumers. Importantly, though, Everex had become a respected name in financial markets. Indeed, in 1986 Everex attracted a fat $18 million in investment capital with the help of investment banking firm Goldman, Sachs; it was the largest private placement of funds in the nation that year. Early in 1987, moreover, Merrill Lynch’s venture fund contributed another $750,000. That left the Wong family and its Wong International Holdings with a stake in Everex of roughly 38 percent.

Rise and Fall

Hui used the cash to develop new products, but also to purchase other companies and technology. Early in 1987, for example, Everex bought Signet Communications Corp., a vendor of computer networking products. Hui also set up a subsidiary called Joy Systems Inc., which customized the company’s computers for mail-order sale under the Joy brand name. New products and ongoing market growth helped Everex to more than double sales in 1987 to about $160 million, about $8.6 million of which was netted as income. Those figures climbed to $267 million and $10.5 million, respectively, in 1988. In 1989, moreover, Everex pushed worldwide sales to $377 million as profit surpassed $21 million, making Everex an emerging leader in the IBM-compatible PC business.

Everex kept a relatively low public profile during the 1980s, but decided in 1990 to start boosting its exposure. “I don’t know why, but it just seems like whenever I’d start reading about a company in the papers, that company was at its peak and on the way down,” Hui told the Business Journal-San Jose. “I certainly hope that’s not the case here.” Those prophetic words signaled a PC industry shakeout that would soon leave Everex and many of its competitors gasping. Although Everex continued to post sales and profit gains into the new decade, the dynamics of the PC industry were changing in a way that did not complement the company’s strategy. In fact, Everex’s days of prosperity were numbered.

Despite sales and profit gains, Hui and fellow executives realized that Everex faced an uphill battle going into the 1990s. PC sales were slowing and major computer manufacturers were slashing prices and willing to exact minute profit margins in return for market share. Industry consolidation would be the result, and it was clear that only the largest, most efficient competitors would prosper in what had effectively become a commodity business. Late in 1990, Chief Executive Hui and Executive Vice-president Lee decided to take a 25 percent pay cut for the 1991 year, while other Everex executives agreed to a ten percent pay reduction. Those reductions were a prelude to big labor cutbacks—Everex’s work force had swelled to 2,500 by 1990—and cost reduction efforts throughout the early 1990s.

Although Everex’s problems were partly attributable to PC industry turbulence, they were also the result of a weak market strategy. Critics believed that the company had lost focus, moving too quickly from its core PC business to chase a variety of related niches such as networking and peripherals. Among other far-flung projects, Everex was working to develop an advanced computerized drafting table, clones for Apple Macintosh and Sun Microsystems workstations, and its own microprocessor. Announcing his ambition, Hui told a Forbes reporter in 1989 that “In the next five years many pages will be written in the history of the computer industry, and more than a few of them will be written about Everex.”

Company Perspectives

With strong engineering and financial resources, Everex continues to produce high technology solutions supported by the industry’s best customer service and support. Everex is committed to leading the PC industry into the future by offering excellence without compromise.

As it shifted emphasis to other numerous projects, Everex’s PC clone business lagged and fell prey to more focused competitors like Dell and Compaq. When competition in the PC business intensified, Everex’s clone business stumbled and cash flow from its other businesses was insufficient to support the entire enterprise. After posting sales and profits of $437 million and $24.5 million in 1990, Everex’s revenue leveled and the company suffered an embarrassing $48 million net loss for the 1991 fiscal year ending in August 1991. And sales and profits were slipping going into 1992.

Realizing the urgency of the situation, Everex’s board of directors decided early in 1991 to hire Harold Clark to assist Hui in managing the company. Clark, who was appointed president and chief operating officer, was experienced in turning around troubled companies. Under Clark’s direction, Everex eliminated projects that were draining cash and aggressively restructured, shedding all but 900 of its workers by late 1992. In addition, Clark tried to engineer the acquisition of PC maker Northgate Computer Corp., which would have given Everex a ready made mail-order distribution channel for its PCs. The effort ultimately failed, however, as Everex’s balance sheet worsened. For the 1992 year, in fact, Everex suffered a loss of roughly $100 million on sales of about $433 million.

Everex’s situation continued to deteriorate. Both Hui and Clark resigned in December of 1992, and Everex’s board hired Jack Kenney, an executive experienced in high-tech turnarounds, to head the failing enterprise. Less than one month later, Everex, unable to meet its debt obligations, filed for Chapter 11 bankruptcy protection from its creditors. Kenney then went to work trying to restructure the company’s debt and renew its solvency. He shed many of the company’s remaining product lines, including printers, scanners, and Macintosh products, and focused Everex on its core line of 486-microprocessor PCs. He also continued to cut unnecessary costs and eliminate workers.

New Ownership in the 1990s

Before Kenney could complete the turnaround, Everex was bought out by a consortium of Taiwanese companies. In November of 1993 the Yside Investment Group, a subsidiary of the Formosa Plastics Group, purchased the company and all of its patents, products, and trade names. Yside changed its name to Everex, and Everex became one of several high-tech holdings in the portfolio of Taiwan’s vaunted Wang family. The Wang family had built a $10 billion multinational conglomerate by 1993, which had started years earlier with Chairman Y. C. Wang’s Formosa Plastics concern. Y. C.’s daughter, Charlene, had started a PC company in the mid-1980s that had become a $600 million manufacturer by 1993. That success prompted the Wang family to begin assembling a portfolio of high-technology companies.

Everex made a nice addition to the Wangs’ group of companies, because, for only $2.3 million, it gave the Wang’s an immediate presence in the United States. Although Everex’s revenue base had eroded to about $150 million annually by the time Formosa bought it, the company was still under contract to supply about $2 billion worth of equipment to the U.S. Government. Furthermore, Everex possessed certain technologies that were of interest to other Wang companies. Y. C. Wang appointed his 36-year-old daughter, Cher, to the company’s helm. The Wangs’ long-term goal was to make their high-tech group of companies a global leader in information processing.

Under the wing of its new, well-heeled owner, Everex’s managers whipped the company’s product line into shape during the mid-1990s, shedding antiquated and unprofitable products and emphasizing a newly developed line of computer systems and servers based on new Pentium-processor technology. Going into 1996, those products included its new DX4 PC systems, Pentium-processor notebooks, and STEP multimedia systems. The company had also developed a line of networking products and systems. Most of the Everex’s products were still being sold through resellers and other nonretail distribution channels.