Wyse Technology, Inc.

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Wyse Technology, Inc.

3471 North First Street
San Jose, California 95134
U.S.A.
(408) 473-1960
Fax: (408) 473-2401

Private Company
Incorporated: 1981
Employees: 1,802
Sales: $480 million (1993)
SICs: 3575 Computer Terminals

Wyse Technology, Inc. is a designer and manufacturer of computer monitors and terminals for mainframe, mini, and desktop computing markets. It is the worldwide leader in the video display terminal market, with over seven million units shipped by 1995. Taiwanese investors purchased Wyse in 1989, but the company maintains headquarters offices in the United States and sales offices throughout the world.

Wyse was launched in 1981 by husband-and-wife team Bernard and Grace Tse. Bernard was a native of Hong Kong and Grace was Taiwanese. They met in the United States while studying engineering at the University of Illinois. While still in school, the couple became convinced that they could design a computer terminal that was better and less expensive to produce than terminals that were already being sold. They persuaded two colleagues to join them in a business venture that would eventually become the largest terminal manufacturer in the world.

The Tses were unlikely candidates for such an achievement. Indeed, by the time they decided to launch their company the computer terminal market was already glutted with well over 100 manufacturers. Furthermore, the industry was about to enter a period of consolidation; as terminal producers began competing fiercely on price, economies of scale became paramount. The Tses, undeterred by the increasingly competitive business environment, marched ahead with plans to launch a manufacturing operation and began looking for investment capital. They first approached venture capital firms, which at the time were the most likely sources of cash for a technology startup. But those groups realized that the Tse’s chance of success was slim, and refused to front any money.

Undaunted, the Tses mortgaged their house for startup cash. That show of good faith helped them to convince David Jackson, the founder of nearby Altos Computers Systems, to supply $1.6 million in additional funding. With cash in hand, the Tses scrambled during the next few years to design a low-cost, high-performance computer terminal that could beat the competition. They achieved their goal in 1983, when they introduced the company’s first big hit: the WY50. Offering a larger screen and higher resolution, the WY50 was priced a stunning 44 percent lower than its nearest competitors. “People thought we were giving away $50 with every shipment,” Grace Tse recalled in the November 16, 1987, Forbes. The WY50 was an immediate success. Within a few years Wyse had sprinted past its competitors to become one of the largest manufacturers of terminals in the world, second only to computer leviathan International Business Machines (IBM).

Wyse posted an impressive $4 million sales figure in 1983. More importantly, the company showed a profit for the first time, and would continue to record surpluses for more than four straight years. Indeed, between 1983 and 1987 Wyse managed to increase annual sales to more than $250 million. The Tses achieved that success using a relatively straight-forward operating and sales strategy. Importantly, they tapped Grace’s Taiwan roots and set up low-cost manufacturing operations in that country. In addition to inexpensive labor, Wyse’s production facilities benefited from close proximity to low-cost parts suppliers. Wyse kept marketing costs low by selling through established distributors and resellers, rather than through a more expensive direct sales force or retail channel.

Complementing Wyse’s operations and distribution savvy was a shrewd product strategy. Rather than spend heavily to research and develop cutting-edge technology, Wyse focused on its core competencies of manufacturing and distribution. It waited for its competitors to establish a new technology. Once demand for the new technology reached a high volume, Wyse would jump in with its own low-cost version. The notable wrinkle in that tactic was that Wyse would also tag on neat, low-tech features that gave its terminals an edge in the marketplace other than a low price. Such gimmicks included European styling, larger screens, and tilt-and-swivel bases. The end result was surging demand for Wyse’s products and its stock. After going public with a stock sale in 1984, Wyse’s stock climbed from $7 to $39 per share by 1987 in the wake of investor excitement.

Wyse’s gains during the mid-1980s were primarily the result of the explosive success of Wyse’s WY50 and subsequent terminal models. But Wyse bolstered that core product line with its venture into personal computers. The Tses recognized that most future growth in the computer industry would be in personal computers, rather than in terminals that were connected to mainframes. To meet that demand, Wyse began developing and selling low-cost personal computers using roughly the same strategy it had used with its terminals. It utilized existing technology to mass produce low-cost, attractive computers. And instead of selling the units through traditional retail or direct sales channels, it sold the computers to other companies that simply attached their name to the units and resold them.

By 1985 Wyse was still generating more than 90 percent of its revenues from sales of terminals, of which it was shipping about 300,000 annually. As it moved to emphasize its personal computer business, however, that share dropped to about 75 percent by 1987. Among other initiatives, Wyse inked a deal in 1986 to supply personal computers as house-brand products to Businessland, which at the time was the top computer retailer in the United States. That helped boost Wyse’s 1987 net income 44 percent to $18 million. Wyse management boldly predicted that sales in 1988 would balloon to about $400 million.

Wyse’s optimistic sales target for 1988 reflected management’s intent to aggressively pursue the booming market for personal computers. To that end, in 1986 Wyse had purchased a computer equipment manufacturer named Amdek. Amdek was a leader in the market for computer monitors. Shortly after the buyout, Wyse announced a plan to begin marketing its computers under the Amdek name, launching Wyse to the status of computer retailer. Wyse quickly developed new lines of personal computers based on the then-popular 80286 and 80386 Intel microprocessors. To give its units an advantage, Wyse designed them to be easily upgradable, meaning that the owners could adapt the systems to changing technology instead of having to replace the entire unit when it became obsolete.

The jump into personal computer retailing marked a divergence from the route Wyse had taken during the mid-1980s. By becoming a retailer, the company was trying to establish itself as a full-line supplier of computer systems. It hoped to use its traditional competencies to prosper in the retail marketplace and steal market share from venerable competitors like IBM, Apple, and Compaq. To spearhead the effort, Wyse hired H.L. “Sparky” Sparks, the personal computer industry veteran who had developed IBM’s successful distribution strategy earlier in the decade. Sparks was intrigued by the opportunity, because he thought he could parlay Wyse’s inexpensive systems into retail success. Wyse’s newest computer in 1987 (the WY3216), for example, sold for about $1,500 to $2,000 less than comparable systems offered by IBM and Compaq.

Some analysts were skeptical of Wyse’s retail strategy, with good reason. By the late 1980s the personal computer market was becoming glutted with competition. Just a few years earlier, in fact, one of Wyse’s competitors in the terminal market, TeleVideo Systems, had ventured into the personal computer retailing market with disastrous results. But the Tses had faced intense competition before, and were confident that they could profit by retailing their PCs. Most observers were optimistic, as well. The company’s stock price shot up during 1987 (before the stock crash), and Inc. magazine predicted that Wyse would be the third fastest-growing small public company in 1987.

Wyse began shipping the first Amdek personal computers late in 1987. As a result, Wyse’s sales rose rapidly, surpassing $400 million by 1989. That growth belied profit setbacks, however. Indeed, a number of factors combined to put an end to the 23 consecutive quarters of profit growth Wyse had enjoyed since the early 1980s. Among other problems, Wyse’s Amdek computer line was slow to win the approval of top-tier PC dealers, largely as a result of aggressive price slashing throughout the industry. To make matters worse, sales of Wyse’s PCs through nonretail channels slowed after the company raised prices on the units during the height of the memory chip shortage of 1988. Then, after posting a miserable fourth quarter loss of $15 million in 1988, Wyse was dumped by one its largest PC buyers, Tandem Computers Inc.

To try and stem the tide of red ink flowing from its balance sheet, Tse hired Larry Lummis to take control of the Amdek subsidiary. Lummis had been one of the original cofounders of Wyse back in 1981, and agreed to come out of retirement to help his old business partner. But Amdek continued to bleed cash, and Wyse was forced to announce big quarterly losses throughout 1988 and into 1989. That’s when Tse began looking for a deep-pocketed partner to help pull it out of its slump. Wyse found its savior in 1989, when the Taiwan-based Mitac Group agreed to buy the company for $262 million. The Mitac Group was itself a division of Chanel International Corp., a Taiwanese government-supported consortium that was pushing to boost Taiwan’s presence in the global computer industry.

Moving to the chairman and chief executive posts at Wyse following the December 1989 buyout was Morris Chang, the head of Chanel International. Chang received an engineering degree at Massachusetts Institute of Technology before earning his doctorate in electrical engineering at Stanford. Among other management posts in Taiwan and the United States, he had served as president at General Instruments Corp. before agreeing to head Taiwan’s Industrial Technology Research Institute (ITRI) in 1985. It was through ITRI that Chang helped to construct the consortium of technology companies that, going into 1990, included Wyse. ’The acquisition [of Wyse] was perceived as a step toward globalization for Taiwan industry. Chang explained in the June 25, 1990 Electronic Business.

Under new management, Wyse began to back off of its drive into personal computer retailing, focus on its traditional core strengths, and develop new products that would help it succeed in the more competitive and rapidly evolving computer industry. Wyse was aided in that effort by the other companies in the Taiwanese consortium, all of which worked together, exchanging technology, partnering manufacturing, and sharing marketing and distribution channels. Wyse introduced a full range of 386- and 486-based PCs during the early 1990s, and even jumped into the market for multiprocessor servers with a full family of systems. Meanwhile, it continued to bolster its lines of terminals. The result was that the company regained profitability in 1991 and doubled profits in 1992, when sales jumped to $480 million.

Wyse eventually decided to completely exit the systems side of the hyper-competitive computer business. Under the direction of president and chief executive Douglas Chance, whom Chang hired in 1994 (Chang remained as chairman of the board), Wyse shifted its focus to its traditional strengths in terminals and monitors. Indeed, restructuring during 1993 and 1994 left Wyse Technology Inc. a company focused entirely on video display terminals and monitors. In that niche, Wyse had become the leader after surpassing IBM in 1992. By 1995, in fact, its Qume, Link, and Wyse brand terminals controlled 37 percent of the general purpose computer terminal market (which included terminals connected to mainframes and minicomputers). Augmenting those products were its low-cost, high-performance desktop computer monitors, which proffered such features as digital panel controls and low-radiant emissions.

In November 1995, Wyse introduced the Winterm product line, the world’s first Microsoft Windows terminal. The terminal was designed to run the popular Windows interface, thus providing a low-cost alternative to networking several complete personal computer systems; for example, a company could purchase several Winterm terminals for $500 to $750 each and connect them to a server, allowing multiple users to get the look, feel, and approximate performance of a PC, but at a much lower cost. For the remainder of the decade, the privately-held Wyse planned to remain focused on markets for terminals and PC video displays.