Packard Bell Nec Inc.

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Packard Bell NEC Inc.

founded: 1986

Contact Information:

headquarters: 1 packard bell way

sacramento, ca 95828-0903 phone: (916)388-0101 fax: (916)388-1109 email: [email protected] url: http://www.packardbell.com

OVERVIEW

Based in Sacramento, California, Packard Bell NEC designs, manufactures, and markets a broad range of desktop and notebook computers and network servers under the Packard Bell, NEC, and Zenith Data Systems brands. The company's major manufacturing operations are in Sacramento, California; Fife, Washington; Angers, France; Sydney, Australia; and Tel Aviv, Israel.

In 1996 Packard Bell, the top seller of home personal computers (PCs) in the United States, merged with Japanese PC leader NEC's personal computer operations outside Japan and China. The merger tightens the global competition for computer dollars. The new company becomes the world's fourth largest PC firm, after Compaq, IBM, and Apple. Packard Bell leads the highly competitive U.S. home PC market with about a 13-percent share. The company pioneered the idea of selling PCs through retail channels—its distributors include Wal-Mart, Sears, Price/Costco, and Montgomery Ward. NEC has found little success marketing its machines outside Japan and China and had long sought a way into the U.S market, which the merger provided.

Packard Bell struggled in the mid- to late 1990s, even as it enjoyed strong sales. Part of the problem was the company's questionable reputation for quality and customer support. As a result, Packard Bell had to receive help, in the form of cash, from Bull Information, NEC, and Intel. NEC contributed production support to improve quality. In 1996, as part of an investment by Bull, Packard Bell purchased that company's Zenith Data Systems subsidiary, a notebook computer and server manufacturer. Intel assumed $700 million in debt from Packard Bell for motherboards and computer assembly in 1994.

ANALYSTS' OPINIONS

Some industry analysts questioned NEC Corp.'s acquisition of Packard Bell Electronics believing that the company's move into the PC market could have been hampered. "We believe Packard Bell has been losing money in general as a company and has been unprofitable," said Kevin Hause, personal systems analyst for Framingham, Massachusetts-based research firm International Data Corp, or IDC. "I think NEC's primary goal will be to eventually take over the new company."

HISTORY

In the mid-1980s, Beny Alagem (formerly a member of the Israeli intelligence community), Jason Barzilay, and Alex Sandel (Israeli immigrants and owners of a computer component distribution company), entered the personal computer (PC) business. Alagem bought the Packard Bell name from Teledyne for less than $100,000 in late 1985. The name set the new company apart from many other companies who were entering the personal computer market at the same time. The original Packard Bell initially manufactured radios and later moved into television manufacturing. By the mid-1980s it was out of business. Having the name of an established company gave their products an instant history, and the confusion consumers might make with Hewlett-Packard and Bell Telephone, was a welcome advantage because these two business giants were such well-respected companies. Alagem, Barzilay, and Sandel founded their computer company, Packard Bell, in 1986.

The company moved to Sacramento in 1994, after the Northridge, California, earthquake destroyed its headquarters. The owners renovated an old Army depot, which became the new headquarters of Packard Bell. Also in 1994, Packard Bell introduced software products as part of its product line, including electronic children's storybooks. In 1995, it launched Spectria, a line of multimedia PCs with built-in monitors.

In July 1996, Packard Bell and NEC, the Japanese electronics corporation, announced a merger of their PC operations. The new company was named Packard Bell NEC, Inc. The merger included the transfer of $300 million in NEC assets to Packard Bell.

STRATEGY

Part of Packard Bell's strategy has been to make its products as user-friendly as possible. The company's first machines, shipped in 1987, were loaded with operating systems, applications, and entertainment software. In 1988 Packard Bell was the first PC maker to offer toll-free technical support and, in 1989 it became the first to provide on-site service in customers' homes. However, the quality of that support has not always been rated highly by Packard Bell PC users.

Although Packard Bell enjoyed a 13-percent share of the home PC market in 1997, it struggled to stay profitable. In an effort to improve profits, Packard Bell launched the largest advertising campaign in the company's history during the fall—a historically heavy buying period—of 1996. Packard Bell aired a series of television commercials designed to build brand awareness and increase retail traffic. "Our goal is simple," said Mal Ransom, vice president of marketing. "If you're planning to buy a computer, it will be impossible to miss the Packard Bell advertising." The multi-million dollar campaign included more than 1,100 national commercials, more than 6,500 billboards, and newspaper ads that ran from September 22 through October 13, 1996. The television campaign combined 60-second and 30-second ads on network television and cable.

FAST FACTS: About Packard Bell NEC Inc.

Ownership: Packard Bell is a privately held company.

Officers: Beny Alagem, CEO; Brent Cohen, Pres.; Marvin D. Burkett, CFO, 55; Alain Couder, Chmn.

Employees: 7,400

Chief Competitors: Packard Bell manufactures desktop computers, notebooks, peripherals, and multimedia PCs, competing with some of the following: Acer; Advanced Logic Research; Apple Computer; AST; Compaq; DEC; Dell; Gateway 2000; Hewlett-Packard; IBM; Micron Electronics; NCR; Sony; Tandy; Texas Instruments; and Toshiba.

INFLUENCES

Packard Bell was the first PC manufacturer to sell its computers through mass-market retail stores, including Sears, Wal-Mart, Price/Costco, and Montgomery Ward. Its competitors had avoided this market because of the risks of high return rates. Since 1987, the company has tried to expand the home PC market by offering systems designed with the home consumer in mind. The systems were priced at or below competitor's prices.

By 1990, the company had more than $500 million in sales and was earning high marks for the reliability of its machines, but poor grades for its customer service. In 1991, Packard Bell moved into Europe, opening a marketing headquarters in Paris and a factory in the Netherlands.

In 1992 Packard Bell began offering fully configured multimedia systems. That year it announced plans to go public, but when it posted mediocre financial numbers, partly because of a high number of returns, investors questioned the move and the plan was withdrawn. However, to compete with IBM and Compaq, who were beginning to move in on its market share, Packard Bell needed cash, so in 1993 it sold 19.9 percent of itself to Groupe Bull. In 1994, Packard Bell added several software products, including children's storybook titles. In 1995 it launched Spectria, a line of multimedia PCS with built-in monitors.

In July 1996, Packard Bell and NEC announced a merger of their PC operations, a deal that included the transfer of $300 million in NEC assets to Packard Bell. Also in 1996, Packard Bell introduced its Platinum line of computers, including a 166-megahertz Pentium model, hoping to stay competitive with industry leaders.

Seeking to gain a share of the Internet-driven PC market, Packard Bell NEC, Inc., U.S. Robotics, and Texas Instruments announced in March 1997 that they joined forces to be the first to offer 56 Kbps high-speed modem capabilities in Packard Bell and NEC brand personal computers. U.S. Robotics' x2 technology, which was built into modems manufactured by Texas Instruments, were incorporated into Packard Bell and NEC brand systems.

CURRENT TRENDS

After a year of declining profits in 1996, Packard Bell looked to 1997 to bring truth to its claim, made in June 1996, that is would become the PC market leader. After his company merged with NEC's PC business outside China, and its purchase of Zenith Data Systems, Packard Bell NEC, Inc. CEO Beny Alagem predicted $8 billion in sales in the first year of the new, larger company. The company fell approximately $1 billion short of that goal.

The greatest difficulty Packard Bell has experienced has been in the sluggish sales of its core Packard Bell brand PC, which commanded 47 percent of the PCS sold through retailers in 1995. In 1996 the number fell to 39 percent. Additionally, Packard Bell was once known for getting its product to market sooner than its competitors, but had lost ground in that area in the late 1990s. It has also been hurt by its reputation for apathetic support.

PRODUCTS

Packard Bell manufactures desktop PCs including the Spectrialine, a line of multimedia PCs with built-in monitors; the Platinum series, which includes the Platinum Supreme models with Intel Pentium processors with MMX technology; as well as the Standard Platinum line of Intel Pentium PCs offered at a lower entry price than other higher performance lines. In 1998, it added nine new models of multimedia computers, the Pack-Mate line, and its value-priced Legend series. In May 1998, the company created a new sub-$700 consumer PC category. The Packard Bell 500, with a suggested retail price of $699, contains a Cyrix 233 MHZ MMX Enhanced MediaGX processor with 24 MB of memory and a 2.1 GB harddrive.

In March 1998, Family PC magazine gave the Packard Bell Platinum 5100 its highest rating for durability. The magazine tested six popular home computers to see if they could withstand the rigors of active use, especially abuse by children. The magazine also ranked the computer high in reliability and gave Packard Bell its "Most Improved Player" award for gains the company made from 1996 to 1997.

CHRONOLOGY: Key Dates for Packard Bell NEC Inc.

1920:: Packard Bell begins making popular brand name radios
1968:: Teledyne purchases the struggling company
1985:: Beny Alagem buys the rights to the name for $100,000
1986:: Packard Bell Electronics Inc. is formed
1987:: The first Packard Bell computer is released
1994:: Packard Bell introduces software as part of its product line
1996:: NEC and Packard Bell merge to form Packard Bell NEC Inc.
1997:: Packard Bell, Texas Instruments, and U.S. Robotics join forces to offer 56 Kbps high-speed modems

Packard Bell also manufactures monitors. Zenith Data Systems, owned by Packard Bell NEC Inc., produces commercial servers, desktop PCs, laptop computers, and wireless remote PC interfaces.

CORPORATE CITIZENSHIP

Since 1995, Packard Bell estimates it has donated more than $2 million in equipment and resources to the Sacramento community, including a 1996 gift of more than $1 million worth of new multimedia PCs to seven different school districts and the police department. "We hope this donation will serve as a model for America, giving every child equal access to the Internet," CEO Beny Alagem said. "The interactive educational environment that people predicted by the year 2000 will be available in Sacramento schools today."

In addition, the company has been a major contributor to area universities and colleges, Junior Achievement, and the Florin Mall Learning Resources Center. Employees have volunteered to help numerous charities and have contributed to the annual Packard Bell NEC Season of Giving.

GLOBAL PRESENCE

At the end of the 1990s, the company had a strong global presence, with manufacturing and distribution facilities in Australia, Brazil, China, Canada, France, Israel, Japan, Hong Kong, Singapore, South Africa, and the United States.

EMPLOYMENT

Packard Bell NEC has created more than 3,200 regular, full-time positions in Sacramento alone, and estimates it has created a secondary market of 10,000 jobs as a result of putting its headquarters in that surrounding community. The company has invested more than $4 million in employee training since 1996 and has employed 1,200 people who were formerly unemployed, under-employed, or receiving public assistance. Its annual payroll at its Sacramento site exceeds $150 million, according to the company.