It is becoming uncomfortably axiomatic that as soon as IBM makes an strategic investment in a software and systems company, that company goes into a financial tailspin. Does management feel it has won the pools and take its eye off the ball? At all events, six months after IBM made an initial investment of $11.2m for an 8.3% shareholding, with the option to increase that to 49.9% (CI No 1,418), Valid Logic Systems Inc is dropping hardware support and incurring a $37.9m restructuring charge. IBM also put up a $90m reserve for Valid to call on over a four year period, but that additional funding was heavily dependent on the success of Valid’s electronic design applications for IBM workstations, and undoubtedly a strong incentive for Valid to focus its activities on IBM hardware. The company, which reported a third quarter loss of $39.6m, will continue to sell Sun Microsystems and DEC workstations for an extra fee, but won’t provide field service. One of the consequences of this decision is the closure of two manufacturing facilities and some warehousing space, although Valid was unable to tell Electronic News how many staff would be made redundant. Joseph Prang, vice-president of sales and marketing, says that the decision to back off from hardware was made some three years ago, and it now contributes only 25% to revenue. However, he also claims that over 70% of Valid’s revenues came from hardware resales in 1987, about the same time as the company decided to stage its gradual withdrawal. Prang believes OEM suppliers are having trouble turning products fast enough because of the rapid rate of introduction, and he attributes some of the $37.9m charge to writing off outdated hardware still held in Valid’s inventory.
