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Control Data a Mere Chip of Former Self

January 30, 1990

BLOOMINGTON, Minn. (AP) _ Once self-proclaimed the most innovative company in the world, Control Data Corp. has entered the 1990s as a much smaller business scarred by $1.4 billion in losses in the past five years.

The loss of $680.4 million for 1989, reported Tuesday, was the worst performance in the computer company’s 32-year history. It eclipsed the 1985 loss of $567.5 million, the previous worst batch of red ink.

In fact, in the 1980s, Control Data lost twice as much money as it earned: $1.43 billion vs. $664.1 million.

To fix things, management has lopped off huge subsidiaries and parted ways with founder William C. Norris. The moves will reduce sales to an estimated $2 billion in 1990 compared with $5 billion in 1984.

″They’ve cut off the patient’s legs, arms and nose,″ said Peter Zidek, a supercomputer consultant who once worked for Control Data. ″There’s not much left to operate on.″

Launched as a maker of mainframe scientific computers, Control Data diversified quickly into financial services by leasing industrial equipment and selling insurance. In 1977 for example, Control Data made about $10.6 million on insurance sales, six times what the entire company earned in 1988.

The company’s far-flung enterprises also came to include windmill farms, factories built in ghettos, incubation centers for small businesses and a training program that encouraged city dwellers to take up farming.

″We were in too many businesses,″ said Control Data spokesman Frank Ryan. ″Management’s focus can only go so far.″

The remedy, carried out mostly by Norris’ successor, Robert Price, has been to sell more than 20 businesses or product lines since 1984.

The selloffs in 1989 included a disk drive subsidiary that accounted for a third of Control Data’s $3.62 billion revenues in 1988, and the shutdown of supercomputer subsidiary ETA Systems. The latter lost more than $230 million in its six-year life and cost $335 million to close.

Another major down-sizing occurred in 1986 and 1987, when Control Data cut all ties to Commercial Credit, the financial services subsidiary that throughout much of the 1970s generated more profit than the company’s computer business.

The changes have coincided with a 72 percent reduction in employment at Control Data - from a high of 60,600 in 1981 to about 17,000 at the end of 1989.

Later this year, 400 more jobs will be cut from Control Data when the company sells it VTC chip-making subsidiary. Mostly to cover anticipated losses at VTC, the company wrote off about $214.7 million in the fourth quarter, resulting in a net loss of $196.4 million, or $4.63 a share.

Newly appointed President Lawrence Perlman has said VTC should be the last write-off in Control Data’s six-year effort to transform itself into a computer-based services company. He is projecting a profit of up to $63 million this year.

Gary Smaby, a computer industry analyst in Minneapolis, said Perlman must meet that projection if Control Data is to be considered a legitimate turnaround stock. In 1983, the stock traded as high as $63.25 a share. On Monday it closed at $16.25 on the New York Stock Exchange.

A darling of securities analysts, Perlman made his mark at Control Data by transforming the money-losing disk drive subsidiary into a major profit center before it was sold.

″But just because they have gone through this gut-wrenching subtraction, it’s not a slam dunk that they will be a success,″ Smaby said.

What’s left of Control Data includes an installed computer base of 1,500 mainframes and 1,500 workstations. Maintaining the base is a huge business, but the company isn’t likely to add greatly to its own hardware, Smaby said.

Instead, Control Data will be devising new applications with hardware made by others.

″You don’t have to be designing the computer anymore. You can’t sell enough of them to underwrite the costs,″ said Lloyd Thorndyke, a co-founder of ETA Systems. ″Control Data is down to services - using computers to manipulate data the way customers like it.″

Control Data divides its businesses into two categories: data services and data systems. Services includes the Arbitron TV ratings unit, payroll processing and Ticketron. Data systems is the computer core.

Zidek said much of the malaise at Control Data stemmed from the overall softness in the computer industry. But the company was hurt more than others because its direction under Norris was diluted by social endeavors, he said. In addition, Zidek said, the engineer-laden leadership didn’t pay enough attention to marketing.

In Control Data’s 1979 annual report, Norris wrote, ″Simply stated, there is no more innovative company in the world.″

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