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Packard Bell tries to rebuild

What happens next for Packard Bell NEC is anyone's guess, but trends at the PC maker are not favorable.

What happens next for Packard Bell NEC is anyone's guess, but trends at the PC maker seem more ominous than upbeat, even with today's replacement of longstanding CEO Beny Alagem, the most visible symbol of the cavalier, devil-may-care Packard Bell of old.

Tumbling sales, increased competition, and lower overall prices have shifted the company closer toward the critical list for major PC manufacturers. Packard Bell has also been unable to shake off its reputation for making shoddy computers.

Indeed, throughout its history the company has never really been

Packard Bell's
consumer fortunes
Year Units* U.S. share Rank
1994 2,130 11.4 3
1995 3,421 15.1 1
1996 2,976 11.6 2
1997 2,846 9.2 3
Source: Dataquest
* figures in thousands
profitable, particularly in the last several years. "We have stated that we have not been profitable for the past couple of years," confirmed Mal Ransom, senior vice president of Packard Bell NEC.

Alain Couder, the former COO of Groupe Bull, was today named chairman of the executive committee of Packard Bell NEC's board of directors, and is expected to be named CEO, replacing the resigned Alagem.

But the man who appears to be charged with turning the company around today said it was too early to comment on a number of issues, including Packard Bell's tenative plans to attempt to hold an initial public offering this year.

Couder said his attention will be focused on increasing revenues. "There is no future in this business without growth. If you have declining revenue, you are in a death spiral in this industry," he stated.

The privately held company has always operated on razor-thin margins and, except for brief periods of time, has not been particularly profitable. NEC, which owns 49 percent of the company, has been putting pressure the Sacramento, California, PC maker to turn a profit.

Although the company still leads the industry in home sales, Packard Bell has seen its retail market share slide in the past two and a half years while competitors such as Compaq have grown. Meanwhile, NEC, its partner, has never fared well in the U.S. home PC market.

Analysts have been predicting that the PC industry will coalesce around a few major vendors, but Packard Bell seems to be moving further away from the main stage--even as it attempts to prepare for an initial public offering of stock.

"Their units are poor. They are off in a market where their competitors are up and their selling prices are down," said Roger Kay, computer analyst for International Data Corporation. "There is not a formula for making money. They are competing in an almost suicidal game," he summarized.

The latest surprise came last night when Alagem, the company's founder and CEO, called it quits. An Israeli immigrant, Alagem has been the pivotal figure in the company's history, largely responsible for snagging equity investments from NEC and earlier from Groupe Bull, as well as sweetheart real estate and tax deals from the State of California.

He is also generally credited as the person who adopted the name Packard Bell for the company, so as to make consumers believe that the company was associated with Hewlett-Packard and the phone company. Profits, however, eluded him.

Alagem, in a phone interview with CNET NEWS.COM, said he is resigning because of a fundamental clash between Packard Bell's original executives, NEC, and Groupe Bull.

He also denied that the company would be one of the also-rans in the industry's consolidation.

"Packard Bell will be in the consolidation. It is an institution today. We have a global operation offering," he said. "When there is consolidation, Packard Bell NEC will definitely be there."

Nonetheless, Alagem also admitted that the resignation came about because the company has not been able to manage its latest phase of growth.

While it is unclear what effect Alagem's departure will have on the company, it certainly comes at a time of transition. The company recently made a break in saying it would adopt processors from Cyrix for a new line of low-cost PCs. Going public would also be a departure.

The company's collapsing sales started in 1996, said Kay. Only a year earlier, Packard Bell was one of the rising stars of the computing world. A surge in consumer sales, combined with Packard Bell's tight relationship with retailers, propelled its growth.

But the party didn't last long. Major PC vendors such as Compaq and Hewlett-Packard began to pour more resources into retail. Their expansion hurt on several levels.

The major vendors not only had strong brand names, but their manufacturing costs were generally lower, said Kay. Further, these companies sold computers to a wider audience, so when times became tight in retail sales, Compaq could always count on corporate sales. Packard Bell, by contrast, only sold in retail, although in recent years NEC has become a kind of sister division focusing on corporate sales.

By 1997, dents in market share and sales began to appear and continued to get worse. In the first quarter, Packard Bell was the No. 1 vendor to U.S. home users with 22.9 percent of the market, said Kay.

That slipped to 17.3 percent by the first quarter of 1998. At the same time, unit sales dropped from 518,000 to 438,000.

The price leader was also on the losing end in price wars, said Kay. Packard Bell remains at the head of the low-low price category, offering a $699 computer. However, it is not one of the leaders in the more profitable $1,200 segment.