Symbolics Now Computer World’s Fallen Star
Two years ago, the artificial intelligence business looked like the smart place to be. At the front of the field was Symbolics, a maker of computer equipment used to develop artificial intelligence programs that was founded in 1980 primarily by Massachusetts Institute of Technology engineers and San Fernando Valley high-technology executives. With its headquarters in suburban Boston and its manufacturing based in Chatsworth, Symbolics was growing so fast that one publication called it “the IBM of artificial intelligence.”
Instead of an IBM, Symbolics turned out to be a supernova. It lit up the high-tech world briefly, then faded as quickly as it came on the scene.
Symbolics’ problem was that its computers were too fancy and expensive for most corporate customers. And the company underestimated the emerging competition from makers of less-expensive computer workstations--the small, powerful computers often used by engineers and scientists--and failed to react quickly.
So far this year the news coming out of Symbolics’ Cambridge, Mass., headquarters has been grim. In January, it announced it would cut its total work force of 730 people by 10%.
On Feb. 2, Symbolics disclosed it lost $15.4 million in the second quarter ended Jan. 3 as sales slipped 10% to $23.8 million. That brought its total loss for the first six months of its fiscal year to nearly $20 million.
Two days later, on Feb. 4, Symbolics’ chief executive officer, Russell Noftsker, and Symbolics’ president, Brian E. Sear, resigned those posts under pressure from the board of directors. The two were said to have feuded constantly over such issues as where to make cuts, causing what executives said was divisiveness in the company.
Things couldn’t have been more different just two years ago. Symbolics then was the early leader among companies making special computers to develop artificial-intelligence programs. Unlike conventional computers, which follow specific instructions to perform tasks again and again, computers with artificial-intelligence programs emulate human reasoning, learning rules of thumb to function something like a human expert.
Symbolics was a pioneer in selling computer equipment with a powerful memory and data channels that could efficiently run LISP (List Processing Programming Language), the computer language favored by artificial-intelligence developers. The equipment is able to manipulate symbols rather than strings of numbers, which most computers handle.
A programmer specializing in artificial intelligence might use a Symbolics machine, for example, to develop computer programs to analyze a bank loan using a customer’s credit history and income data. Or a program might be written to interpret geological data to help find an oil field.
Symbolics’ growth peaked in the fiscal year ended June 30, 1986, when its net income hit $10.7 million, more than double the previous year, while sales climbed 66% to $114.2 million. Its stock, which had sold at $6 a share during its public offering in 1984, peaked at nearly $16 a share in December, 1985.
But its computers were too specialized and too costly, often at $100,000 or more. “A specialized system like that is just plain expensive,” said Michael Murphy, editor of the California Technology Stock Letter in San Francisco.
The price for its machines made Symbolics vulnerable to new competitors who made cheaper computer workstations, mainly Sun Microsystems. Some of those workstations sold for as little as $15,000 and, although not as elaborate as the Symbolics computer, soon were capable of doing artificial intelligence work.
As a result, Symbolics found it difficult to persuade companies to buy one of its machines when a much cheaper model could do similar things. “We probably underestimated the difficulties we would have penetrating the traditional business market,” said Francis J. Feeney Jr., Symbolics’ assistant general counsel. “We found great acceptance in the research arms of companies, but when we leaped into the general business end, we found people wanted to stay with the hardware they know.”
Words like challenging, downturn and restructuring soon began showing up in the company’s reports to stockholders. Symbolics began restructuring in September, 1986. In the year ended June 30, 1987, it lost $25.5 million as revenue fell 9% to $103.8 million and its stock tumbled to a little more than $1 a share. Its stock closed at $1.25 per share Monday.
Jeffry Canin, an analyst with Hambrecht & Quist in San Francisco, said Symbolics’ stock never traded on the basis of the company’s earnings performance; rather, he said, it traded on expectations. Investors speculated on what they thought the company’s prospects were, in much the same way investors put money into biotechnology stocks hoping for a big payoff when products are developed.
“The market for Symbolics’ computers has never taken off to the extent industry analysts and the company itself anticipated,” he said.
To get back on track, Symbolics is making changes. Earlier this month, Symbolics disclosed it was retrenching further by subleasing more than 200,000 square feet of research and manufacturing space it once thought would fill easily, including about 97,000 square feet of space in Chatsworth.
Company executives also are interviewing candidates to fill the chief executive spot. Meanwhile, Ronald L. Derry, the company’s vice president of operations, who was based at the Chatsworth plant, has been named interim chief executive.
Symbolics also has taken steps to get its computers into more offices and businesses, hoping to shed its image as a computer used mainly by highly technical computer-software developers. Earlier this month, for example, it introduced some lower-priced equipment, including one workstation with a $39,000 base price.
“We are trying to move to a broader, general market. We want to reposition ourselves,” Feeney said.
Still, some believe the smart money is staying away from artificial intelligence altogether and that it will be difficult for Symbolics to recover from its problems.
“I don’t think there is much they can do,” analyst Murphy said. “I’m just glad I don’t run the company. I wouldn’t know what the hell to do.”
SYMBOLICS STOCKS AT A GLANCE
Symbolics, a Cambridge, Mass., maker of computer equipment used in artificial intelligence work that has its manufacturing operations in Chatsworth, was one of the hottest high-technology stocks three years ago. Since then, however, its stock price has tumbled to a little more than $1 a share as the company was hurt by competition from makers of small, powerful computers such as Sun Microsystems.
Source: Lomas Publications, Austin, Tex.
