Golden Systems Loses $8.9 Million in Period

Golden Systems Inc., the Simi Valley-based maker of computer parts, announced a fiscal third-quarter loss of $8.88 million after its largest customer, Compaq Computer Corp., rejected shipments of the company’s power supplies for the second time. The loss contrasts with earnings of $124,000 in the year-earlier third quarter.

Revenues in the quarter that ended Dec. 31 dropped 76% to $1.85 million from $7.61 million the year before.

For the nine months that ended Dec. 31, the company posted a loss of $11.2 million, versus earnings of $568,000 in the same period a year earlier. Revenue for the latest nine months fell 8% to $18.65 million from $20.34 million a year earlier.

Houston-based computer maker Compaq, which accounts for 70% of Golden Systems’ sales, cited quality concerns when it sent back the first shipment of $5-million worth of Golden Systems’ power supplies in December. Golden Systems agreed to repair the units, and sent Compaq a sample batch for inspection and possible repurchase last month. But on Friday, Golden Systems disclosed that Compaq had rejected the samples, claiming that even the repaired units failed to meet quality standards.

Golden Systems now says it doesn’t expect Compaq to buy any of the returned units. But Compaq will accept newly made supplies from Golden Systems, said Nora Hahn, spokeswoman for Compaq. Golden Systems estimates the cost of the rejected units to be $4.1 million. The firm incurred an additional $2-million loss because production at its factories was interrupted to sort out the alleged quality problems.

In a written statement, Raymond Thomas, Golden Systems’ chief operating officer, said he was “surprised and disappointed” that Compaq had sent back the sample batch. The company is looking for ways to salvage the rejected units and minimize the loss, he said.

The company also said it plans to shift to higher margin products. “It’s clear we will have to give up revenues in order to strengthen our margins. We will come out of this a smaller, but stronger company,” Thomas said in the statement.

Founded in 1991, Golden Systems grew rapidly by offering rock-bottom prices on its power supplies, which are manufactured primarily in India. But it began having troubles last year as growth fell short of expectations. Compaq’s subsequent rejection of the power supplies was considered a serious blow by analysts, who said other customers may be spooked by it.