Corona Rides Out Computer Crisis but Challenges Remain
Always fast on its feet, Corona Data Systems of Thousand Oaks was one of the trend-setters in November, 1982, when it came out with a personal computer that was compatible with the IBM PC.
Trouble is, being one of the first in that business was nearly akin to being at the head of the line to buy tickets on the Titanic. The industry eventually was deluged with companies that manufactured IBM PC clones, and the bruising competition crippled one computer maker after another.
Corona, however, has been more nimble than most of its competitors. By quickly finding new ways to cut manufacturing costs and to sell its business computers and printers, the company has stayed afloat where others have capsized.
Survival No Mean Feat
“When the market is this bad, to survive is a form of success,” said Chris Christiansen, a senior analyst with The Yankee Group market research and consulting firm in Boston.
But analysts say that, if Corona ever is to become something more than just a survivor, it will need to stake out reliable niches in the marketplace.
That won’t be easy. To begin with, Corona has struggled to find the financing it needs to expand and develop more new products. Like many other computer companies, Corona is finding that the downturn in the industry has frightened off financiers.
Furthermore, some analysts believe Corona could be buried if another of the many second-tier manufacturers of IBM PC clones should emerge from the pack and begin to boom.
Profits Still Elusive
Profits, meanwhile, remain elusive. Corona, a 4-year-old, privately held business, doesn’t divulge its earnings, but has disclosed that it is hovering around the break-even level this year in the face of its stiff competition.
During its fiscal year ended Sept. 30, Corona said, it made money for the first time and had a record $64 million in sales. Corona’s near-term profits, however, may be hampered by the price cuts of up to 49% on its personal computers that it announced for competitive reasons last week.
Although Corona must climb to become truly successful, few industry experts write off its prospects. The company’s management is considered experienced and savvy.
“They have a good common-sense approach to the market,” Christiansen said.
Analysts call Robert S. Harp, 48, the company’s chairman and chief executive, a brilliant engineer with unusual business foresight.
‘Knows What He’s Doing
“He clearly knows what the hell he’s doing in designing stuff. Not many do,” said Michael Murphy, editor of the California Technology Stock Letter in San Francisco.
Harp established his reputation in the computer industry as the co-founder, with his wife and a family friend, of Vector Graphics, a pioneer in the personal computer business in the 1970s.
Vector Graphics set up Corona in 1981, the year the IBM PC was introduced, as a subsidiary that made components, first for Apple and later for IBM personal computers. The next year, after Harp and his wife separated, he left Vector, bought most of Corona and made it an independent company.
Convinced that IBM’s equipment would set standards for the personal computer industry, Harp quickly swung Corona into the production of personal computers that use the same software as the IBM PC. Despite early recognition of the importance of IBM compatibility, however, Harp saw his company get beaten to the punch in the PC compatible business by Houston-based Compaq, which has thrived by establishing an extensive retail network.
Compaq Gets 5.4% Share
According to the International Data Corp., a Framingham, Mass.-based market research and consulting firm, Compaq last year captured a 5.4% share of the market for personal computers used by businesses, Corona’s principal market, by selling 142,200 of the machines.
Corona, capturing a 1.8% share of the business with shipments of 48,100 computers, was ranked the 11th-largest company in that market by International Data. The results of industry leader IBM dwarfed everyone else’s--it sold 1,111,390 machines and garnered a 42.6% market share.
But Harp’s ability to see the future still paid off. Before competitors got the idea, Corona began making IBM compatible computers for other manufacturers, which market the equipment under their own brand names. Its customers include Sperry Corp., Philips Information Systems and Olivetti.
Daniel R. Carter, Corona’s president, called the business of making computers for other manufacturers “a trade-off.”
“You lose brand identity but you get accounts that you otherwise couldn’t,” he said.
Value-Added Resellers
Corona also developed ties with what are known as value-added resellers, the computer consultants who supply equipment, software and advice to businesses needing customized service.
When the retail market for personal computers collapsed this year, other computer companies tried these marketing channels as well, but Corona had a successful head start.
Corona was a pioneer as well in relying on overseas manufacturing to cut costs. Most of its production is handled by Daewoo, a South Korean conglomerate, or Sanyo, the Japanese electronics giant.
The only manufacturing facility that Corona owns is a 51,000-square-foot plant in Newbury Park, where 110 of the company’s 210 employees work. (Nearly all of the others are employed at the Thousand Oaks headquarters and the company’s research and development center in Westlake Village.)
Without overseas production, analysts say, Corona would be hard-pressed to keep its costs as low as its more prosperous competitors. Companies such as IBM and Compaq can control costs by producing in greater volume.
But Corona executives say their low-cost overseas production agreements and their willingness to live with relatively slim profit margins offsets the advantages of volume. They point to the recent price reduction as evidence of their ability to make their products cheaply.
The cuts, which come amid a slowdown in the computer industry, brought the suggested retail price of Corona’s top-selling personal computer down from $2,795 to $1,495. They also signal a shift in Corona’s competitive strategy.
In the past, the company’s prices dovetailed with the market’s. Corona tried to win over customers with its reputation for high quality and by offering features such as video screens with sharper pictures and greater built-in memory capacity.
Anticipating a round of price cuts in the industry, however, Corona now is trying to attract attention by leading the way in pricing strategy.
‘Put Onus on Others’
Aaron C. Goldberg, an analyst in Santa Clara with International Data, said the move, by displaying Corona’s strength, also scotches gossip about whether the company can survive widespread price-cutting.
“It put the onus on the other vendors,” Goldberg said.
Even if Corona can make money by selling personal computers cheaply, its greatest hope for profits comes from its newest products. They are aimed at filling relatively uncompetitive, and potentially more lucrative, niches in the computer business.
“The computer itself is becoming a commodity item,” Harp said. “What we’ve been looking for are ways to add value to that, and make a higher profit margin.”
Corona early this year joined the handful of companies that sell laser printers, which are relatively high speed and high quality, designed and priced for small-business owners. Company executives said they are negotiating to sell their printers to another equipment manufacturer, a deal that could increase the company’s revenue by as much as 20%.
New Product
Corona also recently introduced a product it calls the Mega PC, an integrated package of equipment that provides sophisticated computer services to as many as eight users at a time. Although clusters of personal computers can be linked by cables to serve the same purpose, Corona executives say their product costs less and works faster than those networks.
Analysts and company executives say the lack of competition in the so-called “multi-user” computer business gives the Mega PC, which uses IBM PC software, special promise.
The long-term outlook for Corona is clouded by its constant difficulty in getting financing. The typical sources of funds for growing young technology companies, the stock market and private investments, have dried up because of the widespread problems in the computer industry.
Financiers “tend to think in black and white,” Harp lamented. “When there’s trouble within the industry, they don’t want anything to do with it.”
Corona executives said merging with another company would be the easiest way to bolster their financial position and that they would consider such as move. But, even though company executives have had to curb their spending on research and promotion for lack of money, they said they haven’t aggressively pursued a merger.
Relish Independence
They appear to relish their independence and take pride in being a trend-setter. Corona also stands to be helped by a deal expected to be completed within the next few weeks in which an unidentified investor would acquire a minority interest in the company.
Even so, Corona executives said, they are less concerned about financing than about developing products that compete well against the competition’s.
Asked what he considers the company’s greatest challenges, Carter replied, “IBM, IBM, IBM.”
