Burroughs, trying to snap back, aims to please
Detroit — The city computer in Fort Lauderdale, Fla., began belching smoke Friday afternoon, Dec. 4. By the time the fire in a memory board was extinguished, the Burroughs Corporation machine was completely useless.
By late the following Monday, Burroughs workers had torn out the damaged main-frame computer and had a replacement installed and working. ''You don't get service like that too often'' from other major computer manufacturers, says Fort Lauderdale administrative services director Steve Galligan.
Until recently, Mr. Galligan, like many Burroughs customers, was critical of the bare-bones service the company provided as a matter of policy. Former Burroughs board chairman Ray Macdonald advised underlings to keep customers ''sullen but not rebellious,'' in an effort to pinch pennies on service costs.
The company's current attempt to woo customers with exceptional service is perhaps the most visible element of a major turnaround effort under way at the Detroit-based computermaker. The Burroughs bid to revive slumping earnings and recoup lost market share goes beyond beefing up customer service. The company also is digesting a major acqusition, revamping its corporate organization, tightening financial controls, and shutting outmoded manufacturing plants.
Most observers give former Treasury Secretary Michael Blumenthal high marks for aggressively stepping up to the problems he inherited when he became Burroughs board chairman in September 1980.
''They have bitten a lot of bullets,'' says Salomon Brothers Inc. analyst Stephen T. McClellan.
Together the bullets amounted to a charge to earnings of $125.1 million or $3 .03 per share in 1980. As a result of the charge, 1980 earnings were $1.99 a share - some 73 percent less than the $7.45 a share the firm earned in 1979.
The charge covered the expense of correcting problems previous top management had allowed to fester. The write-off went toward discontinuing marginal product lines like calculators and adding machines, closing uneconomical factories, and slashing the value of doubtful accounts receivable and bloated inventories.
Despite these stringent steps, the success of the Burroughs revitalization effort is far from assured. Corporate turnarounds are especially difficult in the computer industry because the pace of technological change is brisk and the market leader, International Business Machines Corporation (IBM), has lowered its prices, giving competitors less room to maneuver. To complicate matters further, Burroughs's make-over attempt comes as the recession is hitting the computer industry.
''They are trying to do a turnaround in a tough market,'' cautions Kenneth Bohringer, an analyst with Arnold Bernhard & Co., publishers of Value Line, an investment advisory service.
Even Burroughs insiders admit the turnaround will take time. ''We have come out of a trough and have turned around,'' says vice-chairman Jerome Jacobson, whom Mr. Blumenthal hired away from Bendix Corporation. ''Nobody pretends that we are up and flying like a rocket.''
In fact, steps to relaunch Burroughs ''are so strong they have tremendous side effects,'' Salomon Brothers analyst McClellan says. ''Earnings over the next couple of years will be depressed as they have had to do so much all at once.'' Analysts say 1981 earnings will be between $3.70 and $3.85 a share with 1982 estimates varying from $4.50 to $5 per share.
Outside observers doubt the company ever will regain earlier levels of profitablility. The 19 percent pretax profit margin the firm sported as recently as 1979, ''will be hard to achieve in the future,'' says Kidder Peabody & Co. analyst William D. Esterbrook. Price competition is tougher now, he notes. Other analysts add that in the past the firm artificially held down costs by skimping on some necessary expenses.
Service is one area where Burroughs is no longer skimping. The expense of beefing up service ''is a cost which is paying off,'' says vice-chairman Jacobson. ''We know that from the large number of [postive] letters from customers.''
Some problems Burroughs faces cannot be solved with money alone. Perhaps the toughest is the company's need to regain lost market share in small computers and word processing. Burroughs was an early leader in both areas but failed to capitalize on its postion. Now it must try to wrest market share from strong competitors like Wang Laboratories Inc., Datapoint Corporation, Apple Computer Inc., and IBM.
''We know we have slipped but we think we have ways for getting back there,'' Mr. Jacobson says.
In one bid for regaining share, Burroughs is organizing its marketing operation along lines that parallel its customers' businesses. Thus the company will have teams specializing in selling to banks or health-care institutions or government agencies.
Some outside observers doubt the company can recapture signficant market share. ''They will improve their position from their current nonexistent levels, '' Salomon analyst McClellan says. ''I don't think they will be leaders . . . in intelligent terminals, word processing, facimile (transmission), or word processing. Once you lose market position you almost never regain it. Things move too fast.''
One way to battle back into markets is through acquisitions. In December 1981 Burroughs finished acquiring Memorex Corporation for $105 million. The deal strengthens Burroughs' postion in memory technology and will let the firm sell devices which can be plugged into IBM equipment. ''It is a good move in the long term although in the near term it may dilute earnings,'' Kidder Peabody analyst Esterbrook says.
The aggressive turnaround moves taken by corporate management have calmed customers' fears about buying new equipment from the company, notes Judson Peters, assistant secretary of Northern Illinois Gas Company and president of CUBE, the Cooperative Users of Burroughs Equipment. ''Users feel much more confident about the company.''
Still, Mr. Peters is aware of the size of the challenge Burroughs faces. ''By no means has the whole iceberg been turned in the right direction,'' he says.
Where Burroughs Corporation stands in the computer industry 1980 revenues (millions) 1. IBM 26,212.9 2. Sperry 5,491.3 3. Honeywell 4,924.7 4. NCR 3,322.4 5. Digital Equipment 3,198.1 6. Burroughs 2,857.2 7. Control Data 2,790.5 1980 net income (millions) 1. IBM 3,562.0 2. Digital Equipment 343.3 3. Sperry 313.0 4. Honeywell 293.5 5. NCR 254.7 6. Control Data 150.6 7. Burroughs 82.0 1980 operating profit margins (percent) 1. IBM 21.9 2. NCR 19.9 3. Digital Equipment 16.2 4. Sperry 14.1 5. Honeywell 9.1 6. Control Data 8.5 7. Burroughs 6.0 Source: Moody's Investors Service, Inc.