NEC Pulls Plug on Packard Bell Brand in U.S. and Plans Major Layoffs

Japan’s NEC Corp. said Tuesday that it would lay off at least 80% of its staff at onetime personal computer giant Packard Bell NEC, telling the company’s 2,600 remaining employees that all but 300 to 400 would be out of jobs at the end of the year.

The low-cost personal computer innovator will shut its Sacramento factory, move its headquarters from the state capital to Mountain View in Silicon Valley, and stop using the Packard Bell brand name in the U.S.

NEC’s exit from the U.S. market for home computers comes at a time when the industry is being whipsawed by manufacturers of low-cost machines and those that sell directly to consumers over the Internet. Two weeks ago, IBM Corp. said it would sell its Aptiva personal computers mainly over the Web, pulling them out of most stores.

The market forces were so strong that analysts said they doubted that NEC could save the Packard Bell brand. The Japanese computer giant’s managers were “trying to bail out the boat without realizing they were on the Titanic. It is very sad,” said analyst Rob Enderle of Giga Information Group.

The directors of NEC, which owns 88% of Packard Bell, decided to pull the plug Monday after years of losses and two previous rounds of cutbacks. Workers began learning their fate in face-to-face meetings Tuesday morning.

“There are always going to be frustration and tears,” said spokesman Ron Fuchs, one of those losing a job. “It’s not going to be easy to go home and tell your spouse that you’re not going to have a job.”

NEC and minority investor Groupe Bull of France have poured more than $2 billion into Packard Bell in the last five years, gradually taking control from company founder and former Israeli tank commander Beny Alagem, who resigned as chief executive last year.

Alagem had revived an old U.S. radio brand name, buying it from Teledyne in 1985, and tried to take his company public twice before giving up. At Packard Bell’s peak, it had more than $4 billion in annual sales.

Packard Bell Chief Executive Alain Couder, who was brought in to turn around the company, is also resigning, Fuchs said.

After losing $650 million last year, Packard Bell was aiming to lose only $100 million this year. Instead, a recent analysis showed the company on track to lose $150 million.

Merger discussions went nowhere, and NEC rejected plans to inject more money or to sell some assets.

NEC has previously indicated it would take financial charges for more consolidation in its computer operations. Fuchs said he didn’t know if there were more charges to come, and NEC officials in New York and Tokyo couldn’t be reached for comment.

Packard Bell grew to be the biggest PC maker in the country earlier this decade by slashing prices. But it was later beaten at its own game by upstarts such as EMachines. This year, its domestic share of the consumer market fell from about 15% to less than a third of that.

“Other vendors in the marketplace that had better brand names were able to learn from them and get relationships with key retailers,” said analyst Charles Smulders of Dataquest, a market research firm.

In the first half of this year, Packard Bell and NEC brands combined for 5.4% of the U.S. business and consumer market by shipment volume, Smulders said. That was down 21% from its shipments a year earlier and is a third of the market share the company once commanded.

“They had pretty much destroyed the brand,” said analyst Enderle. “This was a black hole they were pouring money into.”

Enderle said that Packard Bell’s founding managers, including Alagem, deserve the blame for the company’s demise.

“They were the first ones that started the overall price decline,” he said. “They chased cost so aggressively that they lost track of quality.”

As many as 17% of its computers were returned to the factory. It also fell far behind on some bills as it tried to save cash.

NEC, still the fifth-largest computer company in the world, will continue to sell the Packard Bell brand in Europe, where it remains strong in Britain and France. In the U.S., NEC’s Packard Bell unit will sell NEC brands only and aim at the corporate customers now being served by the Mountain View office.