A Look at 1986, and the Climate for ’87 : High-Technology

The downturn in the computer industry that began in 1985 continued in 1986, forcing bankruptcies, additional layoffs and major strategy shifts at several Orange County high-technology companies.

And after two consecutive years of austere and difficult conditions, executives and analysts are loathe to predict any return in 1987 to the high-flying days of the early 1980s.

“We still aren’t seeing the aggressive buying that would signal a major shift,” says Barbara Van, an analyst with Dataquest, a high-tech market research group in San Jose.

Van said the high-tech market, and the computer chip segment in particular, showed some signs of renewed vigor early in 1986 but quickly stagnated and even started to decline a bit as the year drew to a close. Van and other analysts say the markets may not enjoy sustained strong growth until 1988.

For the full year, sales of powerful business computers in the United States rose just 6% to $8.8 billion, according to Dataquest. U.S. sales of personal computers, aided by a brisk market for the cheap IBM copy-cat machines, rose a mere 2.5% to $16.6 billion, the research agency reports.

Despite the generally lackluster performance of the total industry, 1986 is bound to stand out as a stellar year for both Computer Automation in Irvine and General Automation in Anaheim, two of Orange County’s oldest electronics makers.

At the beginning of the year many outsiders thought 1986 would be the last for the two struggling companies: They had been losing money for several consecutive years, and the outlook appeared bleak.

However, both companies undertook massive reorganizations that helped them turn at least modest profits.

Computer Automation lost a total of about $25 million before its program of aggressive cost cutting and divestitures began to work in 1986. By the end of the year, the much-reduced company had turned in three consecutive quarterly profits.

General Automation overcame its nagging problems through a massive restructuring and product shift finally completed in 1986. Now the company, which once made a variety of electronics components and mid-sized business computers, offers only one product line: the Zebra family of microcomputers.

“We’re where we set out to be,” Leonard Mackenzie, General Automation’s chairman and chief executive, said earlier this year after the company announced its first quarterly profit in years.

Many other companies aren’t. For example, Eagle Computer, after a long and valiant struggle, filed for bankruptcy and liquidation in 1986.

Helionetics Inc., a troubled high-tech defense contractor, and ATV Systems Inc., a manufacturer of computer systems for restaurants, both filed for bankruptcy court protection from their creditors.

While hardly candidates for bankruptcy, Alpha Microsystems in Santa Ana and AST Research Inc. in Irvine both used 1986 to attempt a repositioning in their markets.

Alpha Micro, a business computer maker that had been losing money, looked for, and nearly landed, a merger partner with which to weather the market turbulence. Although two potential deals fell through, the company is still on the lookout for a mate. In the meantime, executives say they are concentrating on strengthening their network of independent dealers to bolster sales.

After seeing sales of its “add-on” products for the IBM personal computer slide for a few quarters, AST Research announced late this year that it would join the ranks of the IBM clone makers and manufacture its own desk-top computer. The announcement came just months after IBM said it would include some of the same features offered by AST devices as part of its basic computers.

“The company needs to grow,” Thomas Yuen, an AST founder and leader of its business development efforts, said at the time. “If you don’t, in this industry, you collapse.”