High Hopes for a Hard Disk Drive : Tandon Pins Its Bid for a Comeback on a Device to Make Its PCs Stand Out

Times Staff Writer

Casey Hughes, vice president of personal computer manufacturer Tandon Corp., yanked a hard disk drive from his computer and tossed it on his desk. To further emphasize his point, he dropped the data-storage device on the floor and allowed it to clatter dramatically.

Hughes looked satisfied. "You can throw it on the floor and it'll still boot," or restart, he said. "That was something previously you would never do."

Here lie Tandon's hopes for a comeback from severe problems that have plagued the company in recent years. Tandon, based in Moorpark, once was a successful producer of disk drives--the units that house information in computers. But by the mid-1980s it had fallen victim to Japanese competitors and slumping computer sales, and it lost nearly $200 million in the 1985-86 fiscal years.

Since then it has been trying to make it in the personal computer market and is hawking the removable, portable disk drive as the feature that distinguishes it from other PC makers. Meanwhile, Tandon sold its data-storage business to Western Digital last year.

Difficult Changes

It has been a rocky transition. The firm lost $19.9 million last year on sales of $309 million, and lost $11.9 million in the first six months of 1989. Its stock, which hit a peak of $34.25 a share in 1983, traded recently at 50 cents.

And there are signs that Tandon's rebound won't be easy. Competition is intense in the U.S. personal computer market, and the recent strength of the dollar has hurt the firm in Europe by making its products more expensive. Also, it remains a big question as to whether Tandon's removable disk drive will spur enough demand for its computers.

Sirjang Lal Tandon, chairman and chief executive who founded the company in 1975, is apparently undaunted. The Indian-born Tandon, known as Jugi, was out of town and unavailable for an interview. But Hughes said Tandon "takes his impact on the PC market seriously."

At the height of his success in 1983, Tandon was listed by Forbes magazine as one of the nation's 400 richest individuals, with his 11% stake in Tandon Corp. worth an estimated $150 million. A flamboyant entrepreneur with a passion for collecting cars, he was quoted at the time as saying, "I've made more money than the next four generations will need to spend."

Remains in Control

But with the collapse of Tandon's stock, Jugi Tandon's 7.3% stake in the company is worth only about $2.5 million. Nonetheless, he remains firmly in control of the company.

"Everything in Tandon is Jugi," said Hughes, who heads Tandon's U.S. operations.

Yet, Jugi Tandon's impact on the PC market has yet to be felt to any major degree, at least in the United States. Nearly 90% of Tandon's sales are in Europe, where the firm established a base under the guidance of Chuck Peddle, a former Commodore International computer whiz.

Peddle joined Tandon in 1986 as part of an impressive team of computer industry veterans, including former International Business Machine Corp. executives Dan H. Wilkie and H.L. (Sparky) Sparks, who were hired to make the company a successful PC manufacturer.

Peddle, Wilkie and Sparks have all since left Tandon, and along with the departing executives went Tandon's profits. After two years of losses, the firm reported net income of $23 million in 1987. But last year's loss indicated that the bad times weren't over.

Considered Unreliable

Moreover, the company earned a reputation for unreliability by announcing and taking orders for products long before it was able to deliver them. "We had a year where we waved the banner of technology and didn't deliver it," Hughes admitted. "I shot myself in the foot."

Peddle said Tandon can still become profitable. "We showed Tandon could be a profitable company," he said. "The market hasn't changed that much since then."

Peddle quit his post at Tandon last year and he's forming his own computer company.

Asked why he left, Peddle replied, "You can only have so many managers at the top."

Wilkie said he butted heads with Jugi Tandon over management issues. "At the time he wanted complete control of the company," he said, but added that they remain friends. He also said Tandon can survive the downturn. "I wouldn't count the man out at all," he said.

Wilkie and Sparks resigned from Tandon in 1986 and run Dynabook Technologies, a Pleasanton, Calif.-based computer company.

Hughes tried to cast the management changes in a positive light, saying of Tandon, "He's now back firmly entrenched at the helm, which is where I believe he should have been all along."

Growing Sales

Hughes also insisted that the worst is behind Tandon. Sales are growing, he noted, and the company is leaner because of cost-cutting moves, including a decision to drastically scale back U.S. operations. Field offices across the country were closed this year and 240 employees, or 35% of its domestic work force, were laid off.

But Hughes contended: "We're not pulling back from the U.S. market at all. We started downsizing ourselves as a cost-efficiency move. We're simply changing the way we do business," by centralizing dealer services at the company's headquarters, he said.

Hughes believes that this strategy can result in U.S. sales of $300 million within three years--roughly equal to the firm's total 1988 sales. And by continuing to ride roughshod over costs, Tandon can be profitable again, he said.

Analyst Robert Charleton at Dataquest, a high-tech research firm in San Jose, predicted that total PC shipments in the United States this year will increase 10% from 1988. But competition will remain fierce, he said, and price-slashing will continue.

Not all PC manufacturers are hurting. Compaq Computer, for instance, has been logging impressive earnings gains. "Our company is market-driven rather than technology-driven," said Compaq spokesman John Sweney, meaning that it designs products based on what it thinks the marketplace needs or wants, rather than developing a new technology and trying to create a market for it.

Dollar Problems

Meanwhile, the strengthening dollar could continue to pose problems for Tandon, which also recently raised its prices in Europe by 15%.

"The question that remains to be seen is if they can raise their prices in Europe without losing too much business," said Bob Katzive, vice president of Disk/Trend, a Mountain View consulting and research firm.

Aaron C. Goldberg, vice president of microcomputer services at the research firm International Data Corp. in Framingham, Mass., thinks Tandon would do best to continue focusing on Europe, where competition isn't as tough. "Why beat your head against the wall in the U.S.?" he asked.

Tandon's future also depends on the response to its removable hard disk, called the Data Pac, which Hughes said should appeal to companies and government agencies that require security and the ability to transport data. But reviews so far have been mixed.

"We liked it," said Michael McCarthy, product review editor for the trade publication InfoWorld. McCarthy said he mailed the disk drive to test its ruggedness. "It survived the post office, which has to mean something," he said.

Costs More

However, the Data Pac costs more than other drives, McCarthy said. It also faces competition from Quantum, which makes a similar product, and from new floppy disks that are capable of storing far more information than the old floppies.

Katzive questioned whether the Data Pac is enough to turn Tandon around. "I don't think they could make a living if that's the only thing they have to offer," he said.

Set Chau, president of Total Systems, a Simi Valley computer dealer, said Tandon's PCs are reliable and high-quality. Yet sales of those computers aren't living up to expectations, he said.

Hughes conceded that the Data Pac feature may have limited appeal. "The thing we're realizing is the Data Pac technology is an absolutely brilliant breakthrough for those with a defined need. It wasn't a solution for everyone."

But for now, he said, Tandon's mission is to be a reliable supplier. "I don't expect this year to make any massive changes," he said. "I expect to demonstrate stability."

Tandon Corp. at a Glance Tandon Corp. is a maker of personal computers, with nearly 90% of its sales in Europe. Founded in 1975 by Sirjang Lal Tandon, the company sold its original computer disk-drive business in 1988 to concentrate on complete computers.

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