Atari Chief Takes on Apple, IBM and Commodore : Tramiel Confronts Skeptics With a New Line
Computer businessman Jack Tramiel, who acquired the money-losing Atari home-computer and video-game business from Warner Communications Inc. last summer, shifted his battle for survival to the industry’s largest trade show last weekend, demonstrating a computer priced far below its closest competitor, the Macintosh, produced by Apple Computer Inc.
Atari’s new ST family of computers, costing from $400 to $600, was greeted with both praise and skepticism on the floor of the Consumer Electronics Show, which ends today.
A number of industry executives said they were impressed by the design features and aggressive pricing of the new product line, but they voiced uncertainties about Tramiel’s decision to introduce a system that is incompatible with those already in the marketplace. Some also questioned his ability to bankroll the project.
Tramiel is taking on not only Apple Computer but also giant International Business Machines Corp. and his own former company, Commodore International Ltd., in his effort to transform Atari into a contender in the higher end of the home-computer market.
Tramiel left Commodore a year ago after losing an apparent power struggle with the company’s largest shareholder. Former associates say Tramiel has staked his ego and an estimated $45 million of his personal fortune on his Atari gamble.
Although Tramiel paid no cash down for Atari, the company he used to acquire it was capitalized with $75 million, and he agreed to pay Warner $240 million in 10-year and 12-year notes.
In an interview, Tramiel declined to say how much he has personally invested to date, but he acknowledged that Atari has not established a line of credit with banks.
“I don’t need a line of credit with banks,” the 56-year-old executive said. “I built a $1-billion company (Commodore) with much less than $75 million of my own money. I started up with $10. . . . I know how to build businesses without money.”
Tramiel has set a goal of $1 billion in 1985 revenue for Atari, even though he said the Sunnyvale, Calif.-based company posted revenue of just $125 million to $130 million in 1984 after he assumed control.
The Atari Corp. chairman noted that he did not begin shipping products in quantity until Oct. 15 because of difficulties in collecting on old accounts. Tramiel said he has collected about $50 million of the $300 million owed to Atari at the time of the July 2 sale. If he does not succeed in collecting at least $106.5 million in accounts receivable by next June, he will be entitled to lower the purchase price he promised Warner under terms of the sale.
Since September, Tramiel has obtained $18.1 million in cash, part of it effectively a loan, from Warner. He sold the New York-based entertainment company some of the Atari accounts receivable for $10.1 million and negotiated a deal enabling him to borrow up to $12.5 million from Warner for three years at 13%. So far, Atari has obtained only $8 million of that sum and has not exercised its right to obtain an additional $4.5 million, Tramiel said Sunday.
In addition to the new ST line of computers, Atari said it is repackaging and expanding the current line of 800XL computers, renaming the computer line XE and scheduling shipments in the second quarter.
Tramiel said orders are already being written for the Atari products, but he declined to identify any of his customers.
During his tenure at Commodore, Tramiel became renowned for driving down manufacturing costs with low prices passed on to consumers. Commodore had won more than 50% of the home-computer market by the time Tramiel left the company.
At Commodore, Tramiel was accused of near indifference to the need to develop software for his computers, but the low-priced Commodore 64 attracted a host of software writers.
That same strategy might not work with the higher-priced market, according to Tramiel’s critics, who note that a word-processing program for the highly acclaimed Macintosh has yet to appear a year after that product’s introduction.
Tramiel made overtures to the third-party software writers attending the show, promising cooperation and support if they write programs for the ST family.
Sigmund Hartmann, the former head of Commodore’s software unit before taking a similar position at Atari in November, vowed that Atari will have “25 to 30” software products available by the time the new ST computers arrive in the stores.
Same Microprocessor
Hartmann said he signed one key deal with Matrix Software Corp. at the end of the first day of the show and expected more deals to result from his talks with dozens of other software companies.
Hartmann added that software writers will be able to adapt many programs written for the Macintosh because both machines use the same Motorola microprocessor (MC68000).
But Trip Hawkins, president of San Mateo, Calif.-based Electronic Arts, a software developer, warned that as much as 30% to 50% of a Macintosh program might have to be redone to run on the ST computers because of the differences in the way the microprocessor is used in the competing machines.
Nevertheless, Hawkins said, “if the machine is going to be a factor, we’re going to support it.”
Atari’s fate rests largely with the mass merchandisers Tramiel has always relied on to sell his low-priced products. Such companies often wait weeks or months after the Consumer Electronics Show to place their orders, however.
Tramiel refused to comment on reports that he has asked major national retailers to guarantee acceptance of a portion of any orders they place for his computers this year.
A number of show attendees voiced hope that Tramiel’s efforts will succeed because his aggressive pricing helps build the low end of the market and could spur the growth of the high end as well.
But many expressed the belief that the odds are running against Tramiel, because of the financial strength of his competitors and their ability to cut prices on established products or to introduce new ones.
Commodore, for example, not only introduced a new computer with twice the memory of its popular 64 model but is also expected to introduce its Amiga computer this spring, heralded as a serious competitor to the Macintosh.
