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December 1, 1995

TADPOLE, HAVING TO WRITE DOWN ú2.4m OF POWERPC INVENTORY, MAKES ú9.9m LOSS

By CBR Staff Writer

Tadpole Technology Plc has been toying with the affections of its shareholders ever since it floated on the London Stock Exchange three years ago (CI No 2,065) – but investors cannot in conscience complain because the prospectus pulled no punches and was full of scarcely-veiled wealth warnings, such as the paucity of profits in the company’s trading record. Chief executive George Grey admitted that the Cambridge-based high-end notebook manufacturer had been a big disappointment to its shareholders, and they must have come close to falling out of love in the past, but as Gwen Guthrie once noted, there’s no romance without finance. This year, promised Grey, things will be different. Tadpole suffered a big blow in May, when IBM Corp cancelled a follow-on contract to manufacture the RS/6000 N40 PowerPC notebook, which had accounted for 26% of sales. The company also cut its US 70-strong US workforce by 30 people and closed the manufacturing facility in Austin, Texas, where the N40 was built. This cancellation contributed to part of the ú2.4m exceptional inventory write-down that Tadpole had to take in its figures for the year to September 30, released yesterday.

Headcount reductions

Pre-tax losses were up to ú9.9m, after the charge, from ú1.3m last time. Tadpole shares plunged 15 pence, or 17%, to 73 pence at the news, before recovering to 80 pence late on. Just last March it raised ú2.5m net of expenses with a placing of 1.25m new shares at 201 pence per share (CI No 2,632). Turnover for the year was down 26% to ú24.2m, indicating that if the IBM contract had been maintained, revenues would have been flat, according to Grey. The headcount reductions and other restructuring in March saved the company ú1.0m in expenses in the year, and they will be ú1.6m less this year than last, despite anticipated significant revenue increases, according to Grey. He said the company had hoped to make up the revenue shortfall with increased sales of the P1000 Intel Corp Pentium-based notebook, but it was marketed badly, and sales had not advanced to expected levels, said Grey. The causes for optimism about this year’s sales include further Pentium-based products and the new AlphaBook, based on Digital Equipment Corp’s Alpha chip. Grey would not reveal details, other than that the launch is planned for this month. Sales of the SparcBook notebook are also said to be growing, with the recent introduction of the SparcBook 3GX (CI No 2,760). Grey insisted the products had very strong growth prospects. But Tadpole will never position itself as a competitor to Toshiba Corp, IBM or Compaq Computer Corp in the portable computer market, and it will never serve anything other than a niche market unless it diversifies. But it felt there was enough room in a workstation-class notebook market, worth around $160m, according to Dataquest’s figures quoted by Grey, for it to prosper. Tadpole said it did have plans for Pentium Pro, but not in the near future. Product development costs rose 4% to ú3.0m in the year, representing 13% of sales, but will decrease this year. Obviously, Tadpole will not pay a dividend. The lower costs, new products and better marketing are the company’s reasons to be optimistic for a better 1996, but it was not making any firm predictions.

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