Computer Company Back From Brink of Extinction

FEW who stumble ever rise again in the predator-filled personal computer market. But one firm that went down, is now back on its feet: CompuAdd Computer Corporation.

Founded in 1982, Austin-based CompuAdd was a pioneer in selling computers by mail. It built and custom-configured its products one order at a time. By 1991, sales topped $500 million.

To boost sales even higher, CompuAdd opened a chain of 110 retail stores between 1991 and 1993. Unfortunately, ``the whole retail marketplace had a makeover from 1991 to 1993,'' says Richard Krause, who became chief executive officer last year. Buyers flocked instead to superstores. Meanwhile, a giant rival, Compaq Computer Corp. in Houston, announced aggressive price cuts in August 1992.

``Those events combined spelled the demise of our foray into retail,'' Mr. Krause says. Unable to negotiate away costly store leases, the company declared Chapter 11 bankruptcy in June 1993. Layoffs reduced the staff from 1,600 to 250.

The firm had plenty of company. As many as 10 percent of computermakers worldwide went out of business in 1992 and another 15 percent in 1993, according to BIS Strategic Decisions of Norwell, Mass.

Last month Austin-based CompuAdd was acquired by Dimeling, Schreiber & Park, which acquires distressed companies that it considers fundamentally viable.

CompuAdd emerged from bankruptcy after five months by giving unsecured creditors ownership of most of the company. But the reorganization left CompuAdd with no cash and no lines of credit.

It took Dimeling, Schreiber & Park, whose partners include major pension funds, five months of study before deciding to buy all of CompuAdd's stock for an undisclosed price, then give it an infusion of working capital, and arrange $16 million in credit, down from the $75 million line it once had.

Industry watcher JoeAnn Stahel of Stahel & Co., a brokerage house in Dallas, says the new owners ``are good backers'' for CompuAdd. But she warns: ``The road is not going to be smooth by any stretch of the imagination.''

What impressed the investors was CompuAdd's core business in mail order, which had never faltered. Schreiber adds that because of incessant price cutting, computer chips have ``a shorter shelf-life than sausage.'' But CompuAdd has no inventory to become suddenly overpriced.

Mrs. Stahel, however, warns that CompuAdd also cannot get the price breaks that suppliers give to larger customers. As for mail order, ``there are many other 800 numbers out there now,'' she says. On the plus side, CompuAdd is known for good products and service, Stahel says, which will generate repeat sales. The investment partnership also liked CompuAdd's presence in the market for computer/cash registers. ``That's not the free-for-all fight that's going on in the consumer PC world,'' Schreiber says.

Adds Krause: ``There's still margin to be made there.'' CompuAdd has sold 38,000 point-of-sale terminals to Sears, Roebuck and Co. since 1991, and has some pilot project installations at Pepsico-owned restaurant chains such as Kentucky Fried Chicken and Pizza Hut.

``We hope it will grow,'' Krause says. He projects sales this year will reach $125 million, which would keep CompuAdd in the top 20 computermakers.

Point-of-sale terminals will account for up to 18 percent of this year's total, and 25 percent to 30 percent next year. CompuAdd might climb to sales of $300 million to $500 million in three years, Krause says. However, ``we're not going to be the next billion-dollar company.'' The opportunity isn't there in the competition-saturated market.

CompuAdd intends to be profitable at a more modest size, even though analysts pontificate about companies needing to be billion-dollar players to survive, he adds.

Schreiber notes that merely emerging from bankruptcy gives a boost to a company's business because suppliers, customers, and even employees are more confident. CompuAdd's sales had fallen to less than one-third of levels prior to its bankruptcy.

He also believes that only the first-time buyer visits a computer store. Second-time buyers are comfortable ordering over the telephone from a company like CompuAdd.

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