Control Data Is Getting Out of Supercomputers : Move to Hurt U.S. Efforts to Compete With Japanese; 3,100 Jobs Will Be Cut
In a move viewed as an embarrassing blow to U.S. technological strength, financially ailing Control Data Corp. on Monday announced that it is closing its supercomputer business and cutting 3,100 jobs overall from its work force.
Analysts said the loss of ETA Systems, the Control Data subsidiary that is the nation’s No. 2 supercomputer maker, would, over time, hurt U.S. efforts to stay ahead of Japanese competitors and remain the world’s dominant supplier of supercomputers. With the departure of ETA from the business, only one U.S. company, Cray Research, is producing supercomputers.
“This won’t immediately result in the sale of another Japanese supercomputer, but it will provide another argument for customers who are already angling to ‘buy Japanese,’ ” said Chris Willard, an analyst with Dataquest, a San Jose technology market research firm. “It shows the world that another U.S. company didn’t make it.”
ETA Systems will account for 800 of Control Data’s 3,100 layoffs. The rest of the cutbacks will come at its other computer equipment divisions. About half of the 3,100 people being laid off work in the Minneapolis area, where Control Data is based, and the others are scattered across the country. The company makes everything from mainframe computers to computer storage devices to electronic lottery equipment.
Variety of Uses
About 410 supercomputers have been installed worldwide, not counting the supercomputers used by manufacturers of the machines themselves. They are used for such complex technical tasks as developing weapons systems, designing advanced aircraft and breaking secret codes. They also are used to simulate and calculate such things as the flow of air over an aircraft wing or the interaction of volatile chemicals, along with other processes that require more computer processing speed than other types of computers can provide.
The market for these machines, which first appeared less than a decade ago, once was thought to be vast, but analysts say growth has been slower than anticipated. For example, Cray Research, which controls about two-thirds of the worldwide market, has seen its sales growth slow from a red-hot 66% in 1985 to just 10% in 1988.
“If the market had been more robust, perhaps Control Data could have made it,” said Patricia Laupheimer, an analyst with Shearson Lehman Hutton in New York.
Laupheimer said the “easy sales” of supercomputers to the government, universities and aerospace companies have already been made. “Now the supercomputer makers need to get into new markets, and it will be harder and the initial purchases won’t be as large,” she said.
Dataquest, which had at one time forecast a 25% annual growth rate for supercomputer sales, has revised the projection downward to less than 21%.
Control Data, which had been making supercomputers--and losing money on them--since 1983, cited its ongoing financial problems for closing the business.
Analysts said Control Data was under severe pressure from its lenders to stem its continuing losses, which have amounted to more than $800 million since 1985. One analyst said ETA Systems, whose total losses since 1983 exceed $350 million, was viewed as the most logical target for the cost cutters.
The company said its streamlining moves would result in a one-time charge of $490 million, including $350 million from liquidation of ETA Systems. The company said most of the restructuring costs will be charged against earnings in the second quarter of this year.
A Control Data spokesman said after months of studying its choices for ETA Systems, the company decided it could no longer “afford to continue product development across such a wide section of products.”
Neglected Software
Asked if Control Data attempted to sell ETA Systems, spokesman Frank Ryan said: “We looked at all options. The shutdown was the most practical.”
Analysts said ETA Systems had never developed a reputation as a strong player in the supercomputer business, largely because it focused too much on building the machines and neglected the all-important software that customers needed to operate the powerful systems.
“The market wants a solution but ETA was delivering fast boxes,” said Gary Smaby, an analyst analyst with the Needham & Co. brokerage firm in Minneapolis. “That’s a whole lot like building a racing yacht with only one sail.”
Analysts said a likely beneficiary of Control Data’s pullout is International Business Machines, which is actively developing its first supercomputer technology. The computer giant is backing the efforts of supercomputer designer Steve Chen’s new venture, Scientific Systems Inc., to build an advanced supercomputer and has other projects in the works as well.
Smaby said without Control Data, the U.S. government, which has been a major customer for supercomputers, for the time being no longer has a domestic second source for its purchases, a position that IBM could fill as soon as its products are ready for market.
Control Data stock closed at $21.50, off 87.5 cents a share, in active trading on the New York Stock Exchange.
The company’s chairman, Robert Price, said the restructuring would allow the company to operate profitably for the remainder of the year and should set the stage for sustained future growth.
THE SUPERCOMPUTER MARKET Boxed Numbers are super computers installed worldwide but do not include those being used by the manufacturers themselves. Dollar figures show estimated factory revenue for 1988. Cray Research (220), $613.4 million NEC (22), $87.5 million Hitachi (26), $33.0 million Control Data/ETA Systems (58), $58.2 million Fujitsu (83), $174.8 million Source: Needham & Co., Dataquest
