At Wang Labs, Glories Turn to Uncertainty : Stiffer Competition, Concern Over Future Leadership Arise

Relations between Massachusetts’ high-technology companies and neighboring communities are not always cordial, but office-equipment maker Wang Laboratories Inc. has long enjoyed a reputation as a model of corporate comportment.

It was Wang, after all, that brought economic rebirth to Lowell, a factory town 25 miles northwest of Boston that was fading fast before Wang chose it for its headquarters in 1977. Wang is known for generous pay, and, in an area where companies regularly flee to New Hampshire for lower taxes, Wang has declared unequivocally its plans to stay in Massachusetts.

So it has been with particular distress that Wang’s neighbors learned this month that the company is in the throes of an earnings slump and faces an uncertain future as never before. “It’s been a shock,” said Leon Jackson, analyst with the Arthur D. Little Inc. consulting firm in Cambridge. “This company’s been regarded as a superman, and now superman has stumbled.”

Some Real Gloating

Among the Wang competitors scattered along Route 128, the Boston area’s high-tech perimeter, he added, “there’s been some real gloating as well.”

The bad news came March 12, when the company announced that earnings for the current quarter, ending March 30, would be 30% to 40% below those of the year-earlier period. Wang officials blamed an industry-wide slump in sales of computer-based office equipment and the strength of the dollar as well as problems unique to Wang.

Last week, Wang said it will close its factories for the first two weeks of July to cut inventories, and may reorganize and even lay off employees to trim expenses. The news has battered the company’s stock, which closed Friday on the American Stock Exchange at $18.50, down from an all-time high in 1983 of $43 per share.

The announcements were particularly jarring in light of Wang’s past earnings performance, for the company has grown tenfold in the last seven years and has posted an average annual earnings growth of 49% in the last five. In the fiscal year that ended last June 30, Wang earned $210 million on revenues of $2.2 billion.

Industry watchers caution that the recent setbacks make Wang’s long-term prospects appear worse than they are, and most believe the company will maintain its prominent place among office equipment-makers. “They’ve got a lot going for them,” Jackson said.

But analysts say the company confronts a serious challenge.

What Wang faces is a nearly complete change in its market.

There has been a steady slowdown in the growth of demand for Wang’s core products, word-processing systems that include more than one terminal. In place of those systems, companies are increasingly buying unified, computer-based office systems that include word processors, personal computers, office telephone switchboards, the medium-size computers called minicomputers and other equipment.

In the emerging market, Wang competes head-on with International Business Machines Corp., as well as such other battle-tested office-equipment makers as Digital Equipment Corp., Data General Corp. and Hewlett-Packard Co. And so far, its entry into the market has been marred by tardy product introductions, poor service and complaints that the company has spent too much effort on “futuristic” products that do not meet the needs of its business customers.

“There are things that we have not done as well as we should have in the last year and a half to two years,” acknowledged Wang President John F. Cunningham. “We have to work hard to get our own house in better shape.”

Concerns About Future

Adding to concerns are questions about the company’s future leadership. An Wang, the chairman and chief executive, is now 64, and was taking a less active role in day-to-day operations until recent problems appeared.

Many observers wonder how the concern will fare when he leaves it in the hands of heirs apparent Cunningham and Frederick A. Wang, 35, the founder’s son and a senior vice president.

Wang owes much of its success to a single good idea. In a twist on a familiar high-tech theme, the Shanghai-raised, Harvard-educated An Wang launched the company in 1951 from quarters above a garage in the south end of Boston.

The soft-spoken engineer led the firm to prosperity in its first 20 years with the design of a variety of electronic devices, including programmable calculators.

But Wang’s business exploded in the mid-1970s when the company was the first to introduce a word-processing system consisting of several terminals. No other competitors entered the market for two years, and with easy-to-use features Wang won a loyal following in the secretarial pool.

Strong Influence

“That grip on the secretarial pool gives Wang an influence in a lot of companies that’s really out of proportion with its size,” said Patricia B. Seybold, an editor of Seybold Publications and a former consultant to Wang.

Multiterminal word processors still account for 40% of Wang revenues, and analysts say the company still controls more than half the market.

Unfortunately for Wang, the company has not yet extended that influence to the other hardware and software products that make up the unified information systems that are sometimes called the “office of the future.”

Wang introduced its personal computer, called the Wang Professional Computer, nine months after IBM’s was unveiled and has sold about 100,000, compared to IBM’s estimated 2 million. The company’s telephone-answering system has been slow to catch on, as has its technically advanced Wangnet local area network, designed to allow Wang products to transmit data, voice and text between them.

Wang is only sixth-ranked among makers of minicomputers, the refrigerator-size machines that power the departmental information systems. And the company has aroused little enthusiasm for its Professional Image Computer, which uses a camera to photograph, digitize and store documents.

‘Delusions of Grandeur’

For a time, the company was also at work to develop its own private branch exchange (PBX), or office telephone switchboard, a project that Arthur D. Little’s Jackson says shows Wang’s “delusions of grandeur.”

But perhaps the most important slip for Wang has been the tardy shipment of a key software product called Wang Office, designed to let Wang office systems perform such advanced functions as tapping databases and dispatching communications via “electronic mail.”

The product was announced in October, 1983, but shipments did not begin until last month. Many Wang customers were awaiting the new product, and the delays cost the firm credibility, analysts say.

Some assert that the delays point to disarray in Wang’s research and development unit. Consultant Andria Rossi says Wang had separate R&D; teams for its word-processing and data-processing products.

“They didn’t even talk to one another,” she said. “When it came time to put together Wang Office, they had to cooperate and found it pretty hard to do,” she said, adding that “a lot of customers have put them on hold.” Frederick Wang acknowledges that the company erred in announcing Wang Office before realizing how long it would take to write the software. But he insists that the product is “what our customers say they want, and a good foundation for what we’ll add next.”

Marketing Problem

To further complicate matters, the company is less often trying to sell its latest products to the office supervisors who are familiar with Wang word-processing equipment. In the new market, the purchases are increasingly made by the officials who purchase data-processing equipment for entire companies--and who are likely to be more familiar with IBM than with Wang.

“It’s going to be tougher and tougher for Wang,” predicted one such official, Anthony F. Pizzelanti, vice president of information systems for New York publisher MacMillan Inc. “IBM’s definitely after their turf.”

The IBM threat cannot be overestimated, analysts say. The giant computer maker has lion’s shares of the markets for desktop and large-scale computers and has now trained its sights on departmental information systems.

“Before, Wang was king of its corner; now they’re suddenly direct in the line of IBM’s fire,” said Stephen K. Smith, analyst with the Paine Webber Group brokerage in New York.

Two years ago, IBM’s primary departmental information system was priced about 40% above a comparable Wang offering, Smith says. Today, a system built around the IBM System 36 computer is about comparable in price to one built around Wang’s VS minicomputer, he says, and although the Wang product offers more capabilities “that’s incredibly aggressive for IBM.”

Other Competition

The competition from two of Wang’s Massachusetts neighbors, Digital Equipment and Data General Corp., is also not to be overlooked. Data General’s CEO and Digital’s All-In-One office systems offer more functions than Wang’s, asserts George F. Colony, president of Forrester Research in Cambridge.

Wang has begun to fight back. Its current advertising campaign singles out IBM’s System 36 to criticize its capabilities point by point.

“For a low-key company like Wang, that’s a major departure,” said Jackson of Arthur D. Little. In his view, the earnings slump may be a blessing for Wang, because it will create an atmosphere of emergency that will make it easier for officials to reorganize and shift some middle managers “who may have been promoted beyond their capabilities.”

The changes have already begun. Cunningham says a reorganization is planned, and layoffs are a possibility, “although you don’t want to do that cavalierly.”

An Wang began taking a more active role in the company’s operations last fall, when Wang Office had fallen far behind schedule.

Attractive Corporate Culture

Observers believe that the company’s corporate culture will help it to attract the bright engineers it needs. Along with some of the most generous pay and sales commissions in the industry, Wang offers employees use of a child-care center and a country club.

The question of succession continues to nag, however, because of An Wang’s importance to the company. Cunningham says the Wang family, which controls 39% of company stock, “very probably” will install Frederick Wang as his father’s successor.

But some in the company feel that the younger Wang’s recent experience as head of research and development did not prove him the best man for the top job. Some have blamed him for conflict within the department; some insiders believe that “he might have been promoted to that job too quickly,” said Colony of Forrester Research.

Late last year, Frederick Wang’s responsibilities were broadened to include manufacturing, and another official was put in direct charge of Wang’s research and development effort.

Many agree that Wang’s prospects will be easier to judge by the end of this year. “In the future, they won’t be growing 30% a year, but I don’t see any reason why they can’t grow and remain attractively profitable,” Jackson said.

At the same time, he added, “they’ve got a rocky road ahead.”