Tandon Set to Do Battle--Again : Technology: Price wars have wounded the Moorpark personal-computer maker. But the company has transformed itself before when times were tough.

Jugi Tandon is no stranger to financial scrapes. Good thing, because he’s in another one.

Tandon is chairman, president and founder of Tandon Corp., a Moorpark-based company that formerly was one of the world’s top makers of disk-drive data-storage products for computers. He abandoned that business in the mid-1980s after an industry slump, Japanese rivals and other problems battered his company and left it with nearly $200 million in losses.

Tandon, a flamboyant, U.S.-educated native of India whose formal name is Sirjang Lal Tandon, then focused his company solely on the personal-computer business and its sales effort on Europe.

For a while it worked moderately well. Tandon Corp. earned $23.5 million in 1987 and, after combined losses of $24.2 million in 1988 and 1989, turned another profit of $25.4 million in 1990.

But the company’s problems have mounted since then. Now Tandon is getting walloped by a price-cutting battle in the PC industry whose impact is felt across Europe and North America, where Tandon has been trying to build a stronger presence.

“This has been the most protracted price war that we’ve seen,” said Brian Clarke, a PC analyst at International Data Corp., a research firm in Framingham, Mass.

As a result, Tandon’s losses are building, its cash balance has shrunk and its stock price has tumbled so steeply that the price of a share will only buy a cup of coffee.

Tandon’s cash on hand, which totaled $58 million at the end of 1990, amounted to only $13.5 million as of June 30. (That was up $600,000 from the previous quarter, however.) Its common stock, which climbed as high as $4.50 a share last year--and made it to $35 in 1983, during Tandon’s salad days--closed Monday at a mere 75 cents a share on the NASDAQ market.

Company spokesman Mike Sanders said Jugi Tandon was not available for comment. But Sanders said the firm is taking a variety of cost-saving steps--such as extending its payment terms to suppliers and narrowing its distribution channels--to “work through this difficult time.”

After losing $48 million on sales of $461.4 million in 1991, Tandon last week said it lost an additional $18.3 million in the first half of 1992. The company’s six-month sales this year, at $201 million, were off 17% from a year earlier.

A big chunk of the latest loss stemmed from Tandon’s decision to write down the value of its inventory by $10.3 million to reflect the industry’s price cutting.

The company, which still sells about 78% of its gear in Europe, also has been hurt by foreign currency fluctuations, although Sanders said the dollar’s current slide to record lows against the German mark and other currencies will help. The drop means that the currencies used to buy Tandon’s machines in Europe convert into more dollars on Tandon’s books.

Also in its favor, Tandon is not being crushed by debt. The company’s net worth--the sum of its assets minus its debts--has been falling in recent months, but it still stood at $32 million as of June 30, or about twice its $16.6 million of long-term debt.

But there’s no discounting Tandon’s problems. The company is being forced to match the industry’s price cuts to stay competitive yet is unable to lower its costs as rapidly. Because the price cuts mean the company derives less revenue per machine, Tandon is draining its cash reserves to cover its expenses.

Tandon, in fact, was one of several PC makers that specialized in selling at lower prices than the industry’s top players, such as International Business Machines Corp., Apple Computer Inc. and Compaq Computer Corp.

But in this price war, the big boys are slashing prices as well.

“Companies like Tandon, which have always played the game of undercutting the first-tier players on price, are being adversely affected,” Clarke said. Indeed, other smaller PC companies have reported losses and/or layoffs because of the price cutting.

There’s also speculation that IBM will make another price-cutting announcement in September, putting even more pressure on companies such as Tandon that make so-called IBM-compatible computers, which can operate programs designed for the IBM system.

Sanders noted, however, that prices of PC components also are continually dropping, which could give Tandon room to cut its prices further to stay competitive.

The price war is only the latest crisis to beset 50-year-old Jugi Tandon’s company. Aside from the disk-drive setback in the mid-1980s, Tandon Corp. faced a cash crunch in late 1989 and early 1990, and its stock sunk to 50 cents a share. The company pulled out of that one, aided by a new line of computers that sold well.

This time, his task is straightforward: The company must get its costs down as quickly as possible before it runs out of money. Tandon has started by laying off 13% of its work force in recent weeks, leaving 1,350 employees. The company is also shedding many of its distribution channels, preferring to concentrate on a few outlets such as Sam’s Club, a chain of 220 office-supplies warehouse stores owned by Wal-Mart Stores Inc. (Many other PC makers, such as Packard Bell Electronics in Chatsworth, also sell to discount store chains.)

Tandon also is “renegotiating more favorable payment terms” with its suppliers, such as stretching payment schedules, Sanders said. He declined to speculate on whether Tandon will require additional layoffs or write-downs in the value of its inventory.

Sanders said the company also expects to bolster its position later this year by unveiling enhanced versions of some of its most popular PCs, including its “modular computers,” whose performance can be easily upgraded by the insertion of various cartridges.

If those steps don’t work quickly enough, Tandon might be forced onto the auction block. The firm has thought about a sale before, hiring the investment-banking firm Bear, Stearns & Co. three years ago to evaluate its financial options. No formal agreements were announced, and Jugi Tandon said he was “not looking for a buyer” at that point. But he also remarked, “Everything in the world is for sale.”

If the company rebounds or is sold, the change would probably help Jugi Tandon repair his personal fortune.

He owns about 5 million shares, or 8%, of Tandon Corp.’s stock, with a current market value of $4 million. That’s a far cry from the glory days of 1983, when his 11% stake was worth $150 million, and he was listed in Forbes magazine as one of America’s 400 richest individuals.

The Cash Drain at Tandon

Tandon Corp.’s excess cash and its net worth have steadily declined in recent years while the personal-computer maker has struggled to fight off intense competition. Net worth is the sum of Tandon’s assets, minus its debts.

For fiscal years ended Dec. 31

In millions

Cash on Hand

Year Amount ‘92* $13.5 ’91 $27.6 ’90 $57.6 ’89 $22.5 ’88 $21.9 ’87 $13.4

Net Worth

Year Amount ‘92* $31.9 ’91 $48.6 ’90 $101.5 ’89 $73.5 ’88 $76.9 ’87 $93.5

*As of June 30

Source: Tandon Corp.