Cutbacks at Eagle Claim No. 2 Officer : Computer Firm Now Targets January for Renewed Profitability

Eagle Computer Co., as part of a yearlong effort to haul itself back from the brink of bankruptcy, has released nearly a dozen employees, including its chief operating officer, and cut management salaries by as much as 42%, company officials confirmed Tuesday.

Gary Kappenman, Eagle’s co-founder and president, said the severe belt-tightening moves were made because the company failed to start turning a profit in September as projected in earlier turnaround forecasts. Kappenman said the cuts, which also include travel and advertising and research and development reductions, are expected to save an estimated $200,000 per month for the Garden Grove company.

The most notable victim of the budget-slashing move is Richard Sergo, Eagle’s chief operating officer since last June and the man Kappenman earlier said would be a principal participant in the company’s rebuilding.

Kappenman said Tuesday that he and Sergo “had different management styles” and admitted that the differences were part of the reason Sergo was returned to consultant status.

‘Cash is Tight’

“Under different circumstances, it might have worked,” Kappenman said. “But cash is tight.” He declined to elaborate on the management differences and Sergo could not be reached for comment.

Kappenman said that although company officials once targeted September as the month Eagle would return to profitability, the event still appears to be months away. “We thought we’d be profitable sooner, but we still have a shot at it by January,” he said.

However, at least one analyst said Tuesday that Eagle’s latest moves underscore just how hard it is for a company, even a former high-flier and Wall Street favorite like Eagle, to turn itself around in the midst of the computer industry’s worst sales slump ever.

“They’re just lucky to be alive,” said Jan Lewis, president of the Palo Alto Research Group. “And with their current strategy I wouldn’t expect them to get back to where they once were.”

Kappenman, the architect of Eagle’s strategy to avoid bankruptcy and carve out a market for its new line of desk-top computers, blamed the latest problems on start-up manufacturing delays in Korea where the vast majority of the company’s computers are now made. However, he said the production problems have been solved. Moving production to Korea was one of Eagle’s key cost-cutting measures.

Sergo was hired last spring as a consultant to negotiate a manufacturing agreement with the Korean company that now makes the company’s computers. In June Kappenman elevated him to the company’s No. 2 position. Sergo is expected to return to consulting.

Also released from the payroll were the company’s public relations director, six temporary workers and three administrative workers, leaving Eagle with 79 employees.

Furthermore, the company’s nearly 30 management workers were told to accept pay cuts ranging from 10% up to 42% for Kappenman, who had been earning $125,000 per year.

However, Kappenman said the cuts would be made up if Eagle meets its profit goals over the next several months.