Can Zenith Data Climb Back From The Depths?

It's always tough for pioneers when the crowd starts closing in. And onetime laptop whiz Zenith Data Systems Corp. has been feeling the squeeze. Four years ago, it was the profitable portion of a company whose TV business had fallen on hard times. Today, under the ownership of France's Groupe Bull, its share of the booming laptop market has sunk to 9% from 23%. Losses over the past three years have totaled an estimated $200 million, according to analyst Bruce Stephens of International Data Corp. No wonder Zenith execs are eager for help from Packard Bell Electronics Inc.

Hooking up with the master of the superstores lets Zenith crank up unused capacity to make laptops that Packard Bell could sell under its name in discount outlets. That might allow Zenith bigger manufacturing runs to bring down costs per laptop, more money for product development, and a chance to recapture lost market share. "Zenith Data needed some volume to pump through their factory in order to keep alive," says Bill Ablondi, an industry analyst with researcher BIS Strategic Decisions. "My feeling is it had more capacity than customers."

Zenith's desktop PC business has been even more hostile than laptops because of price wars and Zenith's tiny presence in the market. For Zenith, the $2 million or so cost of designing a new machine and starting production has become unrealistic at present sales levels. Dataquest Inc. estimates that Zenith's U.S. desktop sales fell last year to 58,000, from 103,000 in 1990.

JUICY BUSINESS. Yet Zenith, headquartered in Buffalo Grove, Ill., needs to remain in desktop computers to hang on to its lucrative government business. Earlier this year, the U.S. Air Force named the company one of two suppliers for a PC contract of up to $724 million. Zenith Data CEO Jacques Noels says that with Packard Bell sharing desktop design costs, Zenith can remain in desktops while allocating a greater share of its R&D budget to portables. Before linking up with Packard Bell, Zenith Data had approached several PC makers, including Japan's NEC Corp., with joint design and manufacturing proposals.

Melding Zenith's notebook designs with Packard Bell's price-conscious buyers may not make for the easiest sell. Zenith has already been disappointed by a January, 1992, agreement to make ThinkPad 300 notebook computers for IBM. Zenith's high costs, industry analysts say, didn't leave IBM sufficient room to price the machines competitively.

Come September, Zenith Data will find out whether it has any better luck with Packard Bell. That is when the two companies expect the first Zenith-built machines to land in the 7,000 American electronics stores that now carry Packard Bell personal computers. Noels has already slashed employment to reduce its costs. Since January, he has lopped off some 400 employees--or 17% of the work force. So what Groupe Bull gets for its latest investment, on top of the $511 million it originally spent for Zenith, is a chance to keep Zenith on its feet for one more round in the bruising PC business.