NEC Corp. effectively pulled the plug on its struggling Packard Bell NEC unit in the United States, mandating a radical restructuring that will result in layoffs of about 80 percent of its staff, the departure of its senior management and its withdrawal from the U.S. retail personal computer market.
The move marks a defeat for the Japanese company, which together with partner Groupe Bull of France poured more than $2 billion into the former Packard Bell Inc. during the past several years in hopes of establishing a significant presence in the U.S. retail PC market. NEC officials were tolerant as losses mounted and Packard Bell's market share slipped, but when red ink continued to mount at the parent company, their patience wore thin.
Packard Bell posted losses totaling more than $1 billion in 1997 and 1998, NEC disclosed earlier this year. Those losses led NEC, which holds 88 percent of Packard Bell, and Groupe Bull, which holds the remaining 12 percent, to insist the unit post a loss of no more than $100 million in 1999. Packard Bell, however, is on track for a loss of $150 million this year and has adopted the restructuring plan as a result, said Packard Bell spokesman Ron Fuchs.
Packard Bell will shutter its Sacramento manufacturing facility, resulting in the loss of about 1,000 jobs. Despite productivity improvements of 30 percent over the last year, Fuchs said, Packard Bell realized it can't compete with cheaper contract manufacturers in Asia and elsewhere. The company instead will shift the manufacture of its PCs to a contract manufacturer by year end, Fuchs said. That manufacturer hasn't been selected.
In addition, Packard Bell is in talks to sell its call center in Magna, Utah, and expects the 600 employees there will be transferred to the new owner. The unit will slash its administrative staff by several hundred employees. All told, Packard Bell will shrink by 2,600 employees to 300 to 400, Fuchs said.
Senior management steps down
Alain Couder, the former Bull executive who headed Packard Bell for the past year and a half, will step down at the end of the year, as will 12 of the unit's 13 most senior executives, including Fuchs. Only the executive in charge of commercial computer sales will remain.
Most striking, Packard Bell will withdraw from the U.S. retail PC market entirely, although it will explore options for selling its consumer-oriented PCs over the Internet or through other channels.
"Effectively, this means the Packard Bell brand will disappear in the U.S.," Fuchs said. Sales under that brand will continue in Europe, where the Packard Bell name wasn't tainted by allegations of shoddy quality as happened in the United States, Fuchs said.
In fact, Packard Bell already had started phasing out use of its brand name in U.S. retail sales in favor of the NEC brand. That didn't stop a precipitous slide in the unit's market share, one that partially reflected management's decision to favor profitability over market share. Now, however, NEC will focus its efforts on sales of PCs to corporate customers under the NEC brand.