Network Computing Devices Inc has had a difficult time of things recently, but reckons the future looks brighter now it is back concentrating on hardware. The Mountain View, California company sold its Z-Mail electronic mail business to NetManage Inc in June, leaving it as a skeletal software business, so it can concentrate on Network Computers (CI No. 2,928). The sale itself didn’t bring Network Computing any real financial gains, but it will be better off in the long term without Z-Mail. Rudy Morin, who came on board in June as executive vice president of operations and finance cited Z-Mail as another example of Network Computing’s ill-timed and selected forays into software, getting too far away from its core hardware competencies. But the move back is not without pain. The company had a lot of inventory earlier in the half that it needed to get rid of, but unfortunately most of this was DRAM chips, by then worth a lot less than the company had paid for them. This necessitated an inventory write-down of around $3.5m in the second quarter, which together with redundancy charges made up charges totaling about $4m. These ate chunks out of gross margins, which were halved in the second quarter and six months, compared to a year before. All of this put together drove the company into the red with losses of $6m in the quarter, against modest $85,000 profit last time. Revenues in the quarter fell 16% to $29.3m, also hitting margins. But the company believed the situation to be recoverable and the first dose of medicine came in the form of IBM Corp decision to resell Network Computing’s X terminals last March, rather than make them itself. IBM struck another deal with Network Computing in June for it to develop IBM’s Network Computers that were spawned from the AS/400 division. This should make a real difference to Network Computing in the future, but only if IBM takes up its option to purchase a substantial part of its Network Computers next year and in 1998 from Network Computing Devices, and that will only happen if unspecified manufacturing requirements are met. The machines will be based on Network Computing’s Explora machines, with IBM’s work at the AS/400 division put on top of that. The Exploras use PowerPC 403 chips, the same chip IBM was believed to be dabbling with in its Network Computers. The company must hope the Network Computer marker rises fast enough to meet and overtake the X terminal business coming the other way. Morin, an old friend of chief executive Bob Gilbertson, was persuaded to move from the East coast to attempt a turnaround at Network Computing. Morin said just doing the turnaround wouldn’t be enough reason for him to move. It is Network Computers that excite him, and he is not alone in that. The pair engineered a turnaround at Data Switch Corp in the 1980s, which CEO Magazine reportedly dubbed the turnaround of the decade. Well it’s now another decade – and another turnaround is required.
