PCO to Close as Search for a New Backer Fails : Chatsworth: The fiber-optics firm will lay off 150. IBM and Corning had sought a third partner to cover operating costs.
PCO Inc., a small Chatsworth fiber-optics company that had backing from giants IBM and Corning Inc., said it will cease operations and lay off 150 employees by the end of the year.
The announcement last week followed six months of unsuccessful efforts to find a partner who would put up the money to keep PCO operating.
Corning, which owns 65% of PCO, and IBM, which owns 25%, wanted the new partner to assume most of the cash burden of the ailing company in return for a sizable investment, PCO Chief Executive Sanford L. Kane said. IBM and Corning would have stayed on, but with a reduced investment if a third investor were found.
PCO employees were given 60 days notice to find new jobs, Kane said, but some may be asked to stay on longer to fulfill existing orders.
The company had never turned a profit in its seven-year existence even though IBM and Corning invested millions to make it competitive, according to Kane and Corning officials, who declined to give specific numbers.
Kane himself worked at IBM for 27 years, where he oversaw the company’s relations with the semiconductor industry, and briefly led a consortium of American computer chip manufacturers before PCO recruited him last year. Kane’s mandate was to turn PCO around and find a new backer.
“We had created out of what was a mess a real team of capable people working toward a goal, and now that goal can’t be reached,” Kane said. “It’s frustrating for everybody.”
Fiber optics uses glass threads as thin as human hairs to carry signals by means of light pulses. A fiber-optic cable carries hundreds of times more information than does the same thickness of standard copper wiring.
Under Kane’s leadership, the company had begun shifting from the highly competitive telecommunications market--in which fiber optics is used to link
telephones--to using fiber optics to transmit and receive information among computers in offices (a process called “data-link”).
PCO hoped to make a success by selling its dime-sized transmission devices to computer companies that use fiber optics to link office computers with a variety of peripheral devices, including terminals and printers.
Larry Aillo, a Corning director of planning and development, said competition from AT&T;, Germany’s Siemens AG and a number of Japanese companies made survival for tiny PCO increasingly difficult.
“Given the outlook for the business versus the risk . . . we just couldn’t justify a significant output of additional investment,” Aillo said.
He stressed that Kane was not responsible for the company’s troubles. “The position we’re in has nothing to do with Sandy Kane’s abilities or the positive contributions he has made to PCO,” he said.
Aillo said PCO may file for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. No decision had been made as of last week.
Kane and Aillo declined to discuss details of the talks with potential new backers, or why the financing talks failed. Aillo said potential investors included competitors and Japanese firms trying to establish a U.S. presence.
Kane said PCO talked to “a large number” of corporations and venture capital firms.
Kane and Aillo would not say how much money PCO has been losing. Aillo said the company’s financial picture improved somewhat after Kane came on board last year and began cutting costs. PCO had carved out an 8% stake in the data-link market, and had 1989 sales of about $15 million, according to Bill Magill, an analyst with ElectroniCast, a San Mateo consulting firm that tracks the fiber-optics industry.
But prices for PCO’s computer communications devices dropped from about $300 each a year ago to $200 today. Part of the reason for the pricing pressure is that many companies have decided to save money by linking computers through existing copper wiring instead of fiber optics, Magill said.
“The margins are very tight now on” fiber-optic devices, Magill said. “Unless you are claiming a major portion of the market for those devices, you are going to have a hard time getting by.”
Kane said he has not decided on his next move, but indicated he prefers running a small company over returning to IBM.
“I’d certainly be interested in another opportunity to make a success of another company,” he said.
