Is it a new Packard-Bell?

Electronic News, Feb 2, 1998 by Cynthia Bournellis

SACRAMENTO, CALF.--PC Maker Packard Bell stormed into a leadership position in the PC business by selling machines cheaper than anybody else. In any retail store ads, the Packard Bell models would carry lower price tags than any other lines. Although it took a leading position in sales to consumers, the company could not make money. To secure the funds it needed to stay in business, it turned to NEC, which made an investment in the company. But NEC's own desktop computer business was also suffering the blahs.

In 1996, Packard Bell merged with NEC Computer Systems Division, and became Packard Bell NEC. Last December, as the losses continued; NEC Corp. and Groupe Bull invested $300 million in Packard Bell NEC to diversify the private company's growth into the commercial market.

A majority of the money is being spent on making the company's commercial computer business bigger and better. Through a new direct build-to-order (BTO) model called NEC Now,

Packard Bell NEC is set up to build servers, workstations, desktop computers, NetPCs and handheld computers branded under the NEC label. These, along with the Packard Bell and NEC Ready PC brands, which are sold through retail, are manufactured in Sacramento, Calif.

Gearing up for an initial public offering, Packard Bell NEC is in the final phase of a realignment, one which started nearly three years ago when Packard Bell purchased Zenith Data Systems Groupe Bull in 1995.

Going direct requires money. The 2-million-square-foot plant sits on a 450-acre site, which was an old Army base. The company claimed it has the ability to do mass production, delivering a few thousand or less systems in five days or so. "I can't tell you where we are at right now (with BTO times)," said Mai Ransom, senior VP of marketing at Packard Bell NEC. "But, we do use a just-in-time inventory system (on components), so a few thousand systems a day wouldn't cause a blip."

The BTO model is different from that of direct leader Dell Computer. In that NEC now also sells through 200 authorized resellers in addition to direct sales. Last August, certain manufacturing processes and lines were rebuilt in order to build one computer at a time. Recent funds will cover further "remodeling" expenses. Currently, the plant can produce more product than it is capable of testing, and could ramp up to a third shift if need be. There is enough room to double certain processes over the next two years. In 1997, the facility pumped out 2 million machines in total, mostly to the U.S. market, with some products going to Latin America.

Undoing The Past

Although Packard Bell had past success in the consumer market, its brand name did not have the patina of a Compaq, a Sony or an IBM. Now that both brands are being built under one roof, the question of quality is one of concern. Packard Bell's image took a hit when the company was charged by Compaq Computer with using refurbished parts. The problem was resolved in court, when Packard Bell agreed to note on its computers that some may include used components. Meanwhile, NEC's image as a high quality supplier was golden.

Beginning last year, says Mr. Ransom, no refurbished parts are being used. Still Packard-Bell NEC has its work cut out keeping the NEC brand "clean" now that Packard Bell is making them. "We aren't tile company we were two years ago," said Mr. Ransom. "Packard Bell is now a brand, not a company. Our quality has improved and will continue." To support this, the company has implemented a component manufacturing audit program to ensure it is getting the best possible parts. There are, for the most part, separate production lines for both the Packard Bell and NEC products, however, the plant does replicate mass production of certain components for both lines.

Packard Bell's reputation has also been tarnished by its poor customer support; reaching the company by telephone took patience and perseverance. A lot of the past and present complaints about quality is related to this, according to Mr. Ransem. He said the Los Angeles earthquake of 1994 put the company's support center there out of business. It has since been moved to Utah, where It employs 1,200 customer service reps. A newer call center exists in Boxborough, Mass., offering technical support for the commercial products.

The consolidation of the Packard Bell and NEC brands into one company (Packard Bell NEC) does not indicate a merging of the brand names into one. The strategy remains the same: there will be products for the consumer/ SOHO user and products for the enterprise. "We've always been perceived as the home computer," said Mr. Ransom. Packard Bell NEC has no plans to introduce its higher cost NEC brand PCs, such as the $2,000 333MHZ Pentium II computer, through retail, due to the cost.

Many analysts believe the company's position is strengthened by having two distinct brands. Said Carl Ravitch, executive VP of Intelect ASW Services, L.L.C., a New York-based firm that tracks PC retail sales: "Their brand identity is there. This will be a major advantage to them if they can keep the brands separate, as long as they don't incur huge marketing costs to do so." Intelect ASW has placed Packard Bell NEC in the number one position for the most units sold to the end user, via both the retail and computer superstore channels, for the months of October and November, 1997.