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November 28, 1988

PROFIT RECOVERY TO BE SLOW: NIXDORF SETS HIRING FREEZE, GOES FOR SYSTEMS INTEGRATION

By CBR Staff Writer

Nixdorf Computer AG has now confirmed that falling profits and rising costs will force it to cut its dividend this year. The Paderborner is caught in a squeeze caused by soaring prices for materials, memory chips, operations and research and development on the one hand, and an increasingly competitive world market for computers on the other. The margins are terrible, chairman Klaus Luft said on Friday. In some markets we have to ship 25% more in volume to get zero growth in Deutschmarks. And where the company had been hoping that profits this year would at worst be flat with the $154m recorded a year ago, Luft now says that they will be significantly lower. And there’s no early improvement in sight: the forecast for sales growth has been trimmed to between 5% and 10%, where around mid-year, the company thought it would manage 10%, and Luft now reckons that it will be the early 1990s before last year’s profit figure – and dividend level – will be seen again. Even the much-vaunted steady growth in employment at Nixdorf is history for the immediate future: the company is freezing the workforce at current numbers, and is having to sell do sale and leaseback deals on some property, and to consolidate research projects for non-essential markets, or even cancel them. Adding to Nixdorf’s problems, three large banks in Switzerland and West Germany have postponed or cancelled orders for new equipment, costing the company more than $60m of 1988 business. The heavy demands on the research and development budget have come about as a result of existing users demanding fur ther enhancements to Nixdorf’s proprietary operating systems at the same time that it is having to invest heavily to standardise on Unix for new users.

Apart from switching to a profits from a growth stra tegy, Luft’s other major measure to recover the situ ation is to reorient the company towards systems integration, supplying other manufacturers’ equipment as well as its own, and as a first step towards this, Nixdorf last month completely recast its internation al marketing operations along lines of business banks, retailers, medium-sized firms, institutions.

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