Computerized games hit profits jackpot for Mattel company
Hawthorne, Calif. — Just south of Los Angeles International Airport, aerospace companies work on everything from satellites to the most advanced electronic weaponry. Strict precautions are taken to keep much of the plants' activities a secret.
In the midst of this industrial area is a complex of plain buildings that houses Mattel Inc. -- and at this site, too, security is tight. The company, famous for its toys, does not give tours; outsiders are not allowed into preliminary-design areas; and even employees' identification badges are color coded -- restricting them to certain areas. A company spokesperson describes Mattel as a ''low-profile'' firm; senior management is usually unavailable for interviews.
Most of the past few years have not been outstanding ones for the company. In Mattel's fiscal year 1978, the company showed a net income of $28 million. Two flat years followed; and in 1981 profits dropped to $7.9 million.
But in fiscal 1982 (which closed at the end of this past January), Mattel dazzled the business community with record results. Its sales hit $1.1 billion, up 24 percent from the year before. And profits increased an astounding 500 percent, to $39.1 million.
Not surprisingly, Wall Street has responded, pushing Mattel's stock on the Big Board to around $20 in mid-May, up from around $8 just a year earlier. Liberal bonuses were handed out to key employees when the 1982 results were in, too. Under a corporate incentive compensation plan, Arthur S. Spear, chairman of the board and chief executive officer, was rewarded with a bonus equal to his approximately $282,000 salary, a company spokesperson says.
Behind the impressive sales growth in such a short time was a product called Intellivision. It's a relatively innocuous-looking set of controls that comes with a small cartridge and hooks up to any ordinary color-television set.
Together they permit a variety of electronic games to be played on the TV screen -- everything from football, baseball, and downhill ski racing to such favorite space-fantasy games as Astrosmash, Space Battle, and Star Strike. According to the company's 10-K report to the Securities and Exchange Commission , Mattel has staked out close to 20 percent of the domestic video-game market.
Last year Mattel sold more than 1 million of the Intellivision master components, five times the number sold the year before. The master-control unit of Intellivision sells for close to $250, and each of the game cartridges can cost from $20 to $50, depending on the complexity of the game, sound effects, and the complexity of the graphics display.
To accommodate what's seen at Mattel as an expanding market, productions of its home-video games, as well as a line of such hand-held electronic games as Dungeons & Dragons and Speed Freak, were split off into a separate unit, Mattel Electronics. The division, created late last year, alone accounted for 25 percent of fiscal year 1982 net sales and 50 percent of operating profits -- $ 287.6 million and $73.1 million respectively, say company reports.
The electronics division at Mattel is expanding so fast that mobile home units have been towed into the company parking lot to accommodate designers and managers. A nondescript factory building, at least 20 years old and abandoned when baby-toys production was moved to a new location in the City of Industry, Calif., is now being converted into offices. The old truck-loading docks are being closed, and a loft has been installed in the empty work bays for programmers and engineers.
Actual production of the various electronic systems and cartridges takes place mostly at Mattel subsidiaries in Hong Kong, Taiwan, and the Philippines. Since sales of toys and games is seasonal, employment by the company ranges from 9,500 to 12,000 in the United States and 2,000 to 6,000 overseas.
While the beeps and zaps of electronic games have brought record results, the company's original forte -- dolls and toys -- hasn't done badly either. Mattel's almost legendary Barbie doll, introduced in 1959, is today a full line of merchandise with many accessories.
If viewed as a separate company, Mattel claims its toy and hobby products group would be the world's largest toymaker. Today it accounts for about 10 percent of the US toy market. In fiscal year 1982, that segment rang up $503 million in sales and operating profits of $65.5 million, both records.
Not everything that is fun and games has turned out profitable for Mattel, however. Eleven years ago the company bought the Ringling Bros. and Barnum & Bailey Combined Shows Inc. in a stock exchange valued at $47 million. The circus went into an entertainment division, along with Ice Follies and Holiday on Ice Inc. and the Circus World theme park in Orlando, Fla.
But in mid-March of this year, Mattel announced it had sold off the circus and the ice shows for $22.8 million, ''approximately net book value,'' a terse announcement stated.
The circus and ice show selloffs apparently do not signal any pullback in nontoy ventures by Mattel. In May it established a People Protection Products subsidiary that went into six selected test markets with a line of 11 electronic gadgets. They include such items as a warning alarm that sounds when cars move into reverse gear; an emergency-vehicle rooftop strobelight; a programmable emergency telephone message, remotely controlled; and a device that triggers an alarm if a purse or briefcase is snatched from its owner.