Phoenix to Provide 6 Million PCs : O.C. Firm Wins Major Soviet Computer Deal

A small Irvine company has been picked to supply up to six million personal computers to schools and businesses in the Soviet Union and to assist the Soviets in establishing their own PC industry.

The Phoenix Group International, a high-technology consulting company, beat out 16 other companies for the job because it agreed to financial terms favorable to the Soviets and to help them build their own PCs rather them buying them from abroad, Soviet officials said Monday at a New York press conference.

Soviet officials said the joint venture with Phoenix is part of a government plan to place three million PCs in Soviet classrooms and three million more in Soviet businesses by 1994.

As the Soviet leaders try to improve computer literacy throughout the society, U.S. and other Western computer makers have viewed the huge Soviet market with much eagerness. But the market has been slow to develop, due largely to tight U.S export controls and the Soviets’ limited access to foreign currencies, which limits their ability to buy technology from abroad.

Phoenix Chairman Charles W. Missler, a former chief executive of Irvine-based Western Digital Corp., Orange County’s largest high-tech firm, said the joint venture provides “a very substantial opportunity for us.”

Phoenix officials declined to estimate the amount of sales they expect the deal to generate or the impact on local employment. However, Jack B. Spencer, Phoenix’s chief financial officer, said the company “hopes for an expanded relationship and a substantial profit in the future.”

But one expert cautioned that past Soviet campaigns to computerize the nation have run into problems. The Soviet Union is considered far behind the United States and Western European countries in the use of computers in schools and offices.

“Every so often the Soviets go on a computerization campaign and nothing ever comes of it,” said Steven Popper, a Rand Corp. economist who specializes in Eastern Bloc technology issues. “There’s a lot of talk and no action because of niggardly allocation of resources and bureaucratic fights between the ministries.”

Lost Money in ’87 and ’88

Phoenix’s selection by the Soviets was no small achievement for the firm. The publicly held company lost money in 1987 and 1988, but broke even on sales of about $10 million in the past 12 months. Its roots go back to a once-bankrupt real estate concern and to several small high-tech concerns involved in the defense and computer businesses.

Phoenix beat out 16 other companies, including firms from Canada, West Germany, France, Austria, Singapore and the Eastern bloc, Soviet officials said.

Phoenix officials said they did not know if any U.S. firms were involved in the bidding. But they were taking pleasure at having struck a deal that may make some much larger computer companies a little jealous.

“I’m not sure how International Business Machines will feel when they find out that this pissant company in Orange County boxed their ears,” Spencer said.

IBM officials could not be reached for comment on whether the computer giant had bid for the business. A spokeswoman for Apple Computer, the personal computer maker that dominates the U.S. education market, declined to comment on the deal or to say whether the firm had sought the contract.

Choice of Smaller Firm

Popper, the Rand economist, surmised that the Soviets may have picked a small company like Phoenix because it would be more dependent on its sales to the Soviet Union than would a larger firm. A smaller firm “would be very accommodating to the Soviet interests, and I imagine the Soviets were also able to get a good price,” Popper added.

V.V. Krynkin, an official of the Soviet State Committee for Public Education, said that Phoenix was chosen because it did not insist on being paid entirely in dollars, of which the Soviets have a short supply. He also said the company would help the Soviets build their own computer factory.

“We offered them something that we thought would allow them to become a self-sustaining organization,” Spencer said. “They want to be able to manufacture and service their own computers.”

Phoenix and the Soviets each will own 50% of the joint venture, Samcom, and will share equally in any profits. Phoenix has also agreed to provide the Soviets with 50% of the profits of American PC, a small Irvine computer maker that will manufacture the equipment being sold to the Soviets. Phoenix owns 66% of American PC.

The new venture will start by shipping kits from the United States to the Soviet Union for assembly there. The Soviets plan to set up their own manufacturing plant and produce 85% of their components within five years.

Student Workstations

The system for the schools will include a network of 10 student workstations clustered around a teacher’s computer and a “file-server” computer that will store programs and data, Phoenix officials said.

“An instructor can sit at a PC and dial in a student’s screen and see what’s on it,” Spencer said. “When the student has a problem, the instructor won’t have to get up and go look at it. The Soviets want the PCs for teaching elementary and junior high school kids what computers are and how to write computer programs.”

The computers, in addition to American PC, will be built by Netcom Research of Fountain Valley, a small computer company also owned by Phoenix.

Phoenix isn’t the only Orange County company that has been trying to break into the Soviet market. Western Digital and AST Research of Irvine have also been active in the Soviet Union, though neither has landed a significant sale.

The Associated Press contributed to this story.

REACTION

The choice of Phoenix prompted both surprise and skepticism. Business, Page 1.