Bishop Graphics fell flat on its face last year when it tried to enter the computer business.
The Westlake Village-based company, the leading manufacturer of drafting supplies for designers of printed circuit boards, got the cold shoulder from customers when it tried to sell them costly computers and software. Eventually, Bishop Graphics lost as much as $750,000 on the venture.
Even so, the company is undeterred. Bishop Graphics executives and industry analysts are convinced that the craft of designing printed circuit boards in this country is quickly shifting from the drafting table to the computer screen.
This year, Bishop Graphics is trying to sell another make of computers and software to circuit board designers. But this time the company is going to offer a product that costs less than one-sixteenth of the one that bombed.
The outcome of its effort will go a long way toward deciding whether Bishop Graphics, which has suffered a sharp decline in profits over the last six months, will rise into a booming business or sink into slow growth.
At the same time, it will test the resilience and adaptability of the company and its forceful 55-year-old chairman, Martin J. Salvin.
Until now, Bishop Graphics has lived, for the most part, in a different world from its customers. It has made most of its money manufacturing simple, low-technology materials for sophisticated, high-technology companies.
Specifically, it makes plastic patterns, known as drafting symbols, and adhesive-backed tapes that designers of printed circuit boards lay on film to create preliminary blueprints for new boards. Printed circuit boards hold electrical components and have circuitry etched onto them.
Designing circuit boards by hand, however, is going the way of the dinosaur. Designers who once used razor blades and tweezers are now turning to computers to make their drafts, performing their jobs more quickly and precisely.
Consequently, analysts agree that Salvin's decision to steer Bishop Graphics into the computer business is a good one. The key question is whether Bishop Graphics, which reported sales of nearly $15 million last year, can make that strategy work.
"The jury is out," said Frank Wisneski, a senior vice president with Wellington Management Co., a Boston-based mutual fund firm.
Wisneski said the recent price of the company's stock, which is traded over the counter and closed Monday at $4.25, down 75 cents, indicates that the stock market is not yet sold on Bishop Graphics' plans. In June, 1983, the stock hovered near $15. Even so, Wisneski and some other analysts regard the company as financially strong and are optimistic about its prospects.
"They know where the designers are," Wisneski said. "That's where their advantage is. They have an exposure and a reputation there."
If the entrance into the computer and software business succeeds for Bishop Graphics, the rewards could be immense. Salvin estimates that annual sales of personal computers and software for designing printed circuit boards will grow to more than $500 million by 1990.
Losing Out to CAD Industry
The U.S. market for the sort of low-cost supplies that Bishop Graphics and its competitors now sell, Salvin said, amounts to only $20 million to $25 million a year.
Salvin said the business that his company now is losing to the so-called CAD, or computer-aided design, industry is minor "compared to the millions, if not billions, of dollars that will be spent over the next 10 or 20 years on CAD-related products."
"We didn't just want to wither away and be in the buggy whip business. We wanted to be in that market," Salvin said.
Although the failure of Bishop Graphics' last foray into the computer-aided design business cost the company time, analysts say it was not a critical blow. But another flop would put Bishop Graphics further behind.
"If they want to grow at a rapid rate, they've got to get into this business," Wisneski said. For now, Wisneski said, Bishop Graphics' expanding overseas sales are offsetting the declining demand for its traditional products in this country.
Joseph Garipoli, an analyst with the Herzog, Heine, Geduld brokerage firm in New York, said Bishop Graphics appears to have learned from its past failure in selling computers. Last time, it put together a system--the actual components were made by other manufacturers--that it sold for about $75,000, a price too high for the company's traditional customers.
Garipoli said the designers and engineers who have bought Bishop Graphics' products normally do not have the authority from their companies to spend that much money.
This time, Bishop Graphics is offering a less-sophisticated package costing $4,000 to $4,500 that combines an Apple Macintosh computer with software written by Chad Pennebaker, president of a San Leandro circuit board firm.
Pennebaker and Salvin also are talking about collaborating further to help Bishop Graphics sell related equipment to circuit board manufacturers, such as a machine that drills holes in the boards at the direction of the Macintosh.
But the potentially huge market for the sort of computer and software packages Bishop Graphics plans to sell could turn out to be little more than a mirage. To succeed, Bishop Graphics faces the difficult task of transforming itself.
In the past, its profits have come from selling products priced from $10 to $15. Now it will have to persuade its customers to spend $4,000 to $4,500.
Because the software it markets runs only on the Macintosh, Bishop Graphics also is dependent on that company's fortunes. Should IBM eventually crush Apple in the computer business, Bishop Graphics would find itself saddled with unsalable products.
But Salvin does not appear to spend much time worrying. He maintains that the company's strength always has been in marketing and that it will be able to sell computers and software as easily as it has sold its traditional products.
As evidence of his marketing skill, Salvin pointed to the growth of Bishop Graphics' retailing unit, a chain of three stores in North Hollywood, Newport Beach and Sunnyvale that sell drafting and art supplies.
And, as a demonstration of his company's versatility, he cited the high profit margins chalked up by Accupress, a San Fernando-based subsidiary that prints work sheets for architects and draftsmen.
Even so, Bishop historically has recorded 60% of its profits manufacturing supplies for designers of circuit boards, and its future hinges on its success in keeping those customers.
During its 1984 fiscal year, which ended Sept. 30, Bishop Graphics posted record profits of $1.1 million on record sales of $14.7 million.
The profits would have been even higher had it not been for expenses stemming from the collapse of the computer venture during the last half of the year.
Over the past six months, the company's profits have been reduced by the downturn in the electronics industry, the continuing erosion of its traditional business and the costs of preparing to launch the new computer sales campaign.
Last week Bishop Graphics announced that it earned only $130,000, or 6 cents per share, on sales of $3.54 million during its second quarter, which ended March 31.
That was down from profits of $333,000, or 14 cents per share, on sales of $3.86 million during the same period last year.
Bishop Graphics and Salvin, a tall, enthusiastic man whose hair is turning from blond to silver, have bounced back from adversity before.
When a fire destroyed most of Bishop Graphics' plant in Chatsworth eight years ago, Salvin for a few moments considered shutting down the company.
Then he thought better of it, started scrambling and quickly put Bishop Graphics back on its feet.
In 10 days, the company had moved to the Westlake Village building that now houses its headquarters and manufacturing plant.
"That gave management, as far as I was concerned, a tremendous amount of credibility," said David Wood, a securities trader and vice president with Seidler Amdec Securities in Los Angeles. "That's a tremendous obstacle to overcome."
Wood described Salvin as "a very powerful guy from a personality standpoint."
Salvin hopes his timing of the move into the new market is as good as it was when he helped found Bishop Graphics 20 years ago. At the time, Salvin, a native of New York who moved to Los Angeles at 12, was a sales manager for a swimming pool company.
When one of his salesmen quit to start a business making supplies for circuit board designers, Salvin became intrigued with the idea and joined him.
He said he raised his initial $2,500 investment for the business by promising his bank he would use the loan for home improvements.
The electronics industry soon boomed in California, enriching Bishop Graphics and other companies that were in the right place at the right time.
Today the company employs 180 people, about 100 of them in Westlake Village. It also deals through a network of 125 distributors in the United States, ships products to dealers in 70 other countries and is engaged in joint ventures in China and Yugoslavia.
Salvin describes his company as "the Cadillac" in the industry of making supplies for printed circuit board designers. He sees his biggest competitor as Chartpak, a unit of Times Mirror based in Irvine that sells supplies to graphic artists as well as circuit board designers.
Unlike Bishop Graphics, Chartpak is not selling computers to circuit board designers.
Pointing to past successes, Salvin dismisses the possibility that the company's new strategy will not work. "Time will tell very shortly," he said. "We're not fearful."
But even Salvin is not betting all his money on Bishop Graphics. On Dec. 31, he sold half of what had been his 24% stake in the company to a group of foreign investors.
He said the move was designed to broaden the company's contacts as well as to help his estate planning.
BISHOP GRAPHICS AT A GLANCE Bishop Graphics made and distributes products used by designers of printed circuit boards. It also owns three stores that sell drafting and art supplies and operates a division that prints work sheets for architects and engineers. It has 180 employees and 2.1 million shares of common stock outstanding.
By quarter, in thousands of dollars
Revenue Net Income 1985 2nd 3,537.0 1985 2nd 130.0 1st 3,245.0 1st 125.0 1984 4th 3,444.0 1984 4th 243.0 3rd 4,082.0 3rd 287.0 2nd 3,859.0 2nd 333.0 1st 3,283.0 1st 209.0
For fiscal years ended Oct. 31.