Computervision Corporation Business Information, Profile, and History
Bedford, Massachusetts 01730
History of Computervision Corporation
Computervision Corporation is a leading supplier of software for use in computer-aided design and computer-aided manufacturing (CAD/CAM), systems used by companies around the world to develop automotive, aerospace, and other engineered products. Computervision got its start as a computer hardware manufacturer in the early 1970s, and it continued to market minicomputers for 20 years. In the 1980s the company had begun to focus its efforts on the design and engineering fields, until the early 1990s, when it suffered a severe financial crisis and dramatically cut back its operations in order to focus exclusively on software and service.
Computervision's predecessor, Prime Computer, Inc., was founded in 1972 in the technology corridor outside of Boston, Massachusetts. Established by a number of computer science engineers, Prime's start-up was funded by venture capitalists. By 1974 Prime had become an engineering-driven company with sales of $6.5 million and losses of $541,000.
In 1975 Prime got a new president, Kenneth G. Fisher. With a background in marketing, rather than science or engineering, Fisher shifted the company's emphasis from research and development to the marketplace. The following year Prime introduced the super-minicomputer, which cost less than a conventional mainframe computer, but processed complex data much faster than a minicomputer. Prime pioneered the development of this innovative product, which blurred the line between the categories of mainframe computing and minicomputing.
Prime used a direct sales force to market its minicomputer to a small niche of customers, sophisticated users who put together their own computer systems and wrote their own software. Using this strategy, along with stringent management and financial controls, the company achieved a high rate of growth in the late 1970s--between 1977 and 1980 Prime's annual sales grew at an average compound rate of 75 percent. In 1978 revenues hit $50 million, and a year later they had passed the $100 million mark, as the company reported sales of $153 million and earnings of $17 million. After doubling its profits each year for five years, Prime had become the seventh-largest mini-computer maker.
With this level of success, it became clear that Prime had outgrown its narrow market. The company needed to expand its product offerings and its customer base if it hoped to see its growth continue at the same rate. In April of 1980 Prime entered the office automation market when it unveiled a new line of computers designed to provide word processing, data processing, and electronic mail capabilities from a single terminal. The Prime system was designed to be a tool used by managers and professionals, and it was set up so that individual work stations would hook into a central computer. With this program, the company hoped to expand its potential pool of customers by 50 percent, including the 1,000 largest U.S. corporations.
In addition to its move into the office automation market, Prime also began to broaden its channels of distribution with another product. In May of 1980 the company introduced a new computer that cost less than half as much as its lowest-priced older models. This product was meant to be sold to computer systems builders, who customized Prime hardware with software programs and peripheral equipment for individual users. In addition, Prime signed up 29 computer dealers to market its products to unsophisticated first-time users.
By the end of that year, Prime's revenues had grown to $267 million, and its earnings had reached $31.2 million. Within six months, however, the tide of the company's fortunes had begun to turn. The company's core minicomputer offerings, once state of the art, had become outmoded and were facing heavy competition. In addition, because Prime had outgrown its loose, entrepreneurial style of management, the company had failed to introduce enough new products, a computer-aided design (CAD) program for example, in a timely manner. The company's practice of farming out software development to outside contractors had caused quality control problems with its office automation systems, and the company's overall marketing focus had slipped.
In July of 1981 Fisher left after a power struggle with the chairman and board of directors. In the wake of his departure, 15 other managers left the company. By year's end a new president had been appointed to fill the vacuum in leader-ship and, hopefully, stop the slide in the company's stock price. Sales growth had declined to 35 percent, half of what it had been a year before, and the company badly needed restructuring.
Late in 1981 Prime introduced a new super-minicomputer, the Model 850, in an effort to remain competitive in that market. The following year, the company also formed a special marketing task force to sell its products to large national corporations. In addition, Prime purchased the British government-owned Compeda, Ltd., a manufacturer of CAD software, in order to strengthen its offerings in that field. Compeda's products aided in the design of petrochemical plants and other processing facilities. With these efforts, revenues increased ten percent to $435 million by the end of the year, and income grew to $45 million.
Despite these gains, however, it had become clear by the spring of 1983 that retooling Prime for future success would not be an easy task. The company announced its first quarterly slump in income in ten years, as executives continued to leave for other jobs. In July, another six sales and marketing managers resigned from the company. Prime was forced to report a second straight quarterly drop in earnings, and its credibility with the investment community declined accordingly. In an effort to bolster profits, in July Prime introduced its newest minicomputer, the Model 9950, which carried a price tag of $392,500.
In hopes of fostering long-term growth, Prime invested heavily in research and development, upping its expenses in this area from 7.6 percent of sales in 1981 to ten percent of sales in 1983. The company concentrated its research efforts in fields that it considered to be the most promising for future growth: office automation, CAD/CAM, and commercial distributive data processing. With this effort, Prime hoped to introduce a large number of new products in a relatively short period of time.
These efforts started to pay off in May of 1984, when Prime introduced the Model 2250 super-minicomputer, which took up the same amount of space as just two desk-height filing cabinets. Designed to be used in a working office environment, the 2250 did not require the climate control of a data-processing center. In addition, this machine ran on the same operating system as the company's other computers, so it was able to use all the same programs, and it was moderately priced at $99,500.
In conjunction with this development, the company also began to stress its CAD/CAM business lines. Rather than sell its hardware to other companies, which then packaged it with software and sold it to manufacturers, Prime chose to market a complete CAD/CAM system directly to industrial designers and other users. To promote these sales, Prime increased its sales staff by 42 percent and its customer service unit by 87 percent. These efforts paid off as the company's CAD/CAM revenues doubled in 1984 to about $130 million, making up almost one-fifth of Prime's sales.
Prime's CAD/CAM initiative came as the company realized that it had missed the opportunity to make a significant splash in several other markets, including office automation and desk-top work stations. Also in May, the company entered into a joint venture with the Ford Motor Co. to market Ford's Product Design Graphics System--developed on a Prime minicomputer in 1980--which specialized in assisting the manufacture of curved and free-form surfaces, like those in cars, airplanes, and ships.
In June, Prime further increased its investment in the CAD/CAM market when the company became a joint owner of the Medusa design and drafting software package with its British developer, Cambridge Interactive Systems Ltd. The following month Prime introduced two new computers that strengthened its offerings in the CAD/CAM field, and by the end of the year the company had started to see some rebound in earnings.
In 1985 Prime's results improved even further, as sales rose 20 percent. This was due in part to the fact that the company doubled its sales force and enlarged its service and support divisions, adding 600 new employees to bring its total to 8,600. This push was part of Prime's effort to take market share away from its competitors as the computer industry as a whole underwent a shake-out.
In response to the industry turmoil, Prime's leaders decided that the structure of the minicomputer industry was in transition, and to survive, Prime would have to be enlarged, staking out a strong market niche. In order to do this, the company made a strategic decision to concentrate its efforts on the CAD/CAM market segment and began raising funds to purchase other companies in this field. By early 1987, $375 million had been gathered, and Prime's managers were shopping for likely acquisitions.
In addition to these long range plans, Prime continued its efforts to maintain its technological edge. In January of 1987 the company rolled out its newest super-minicomputer, the Model 2755. To keep the cost of developing this model down, the company had bought many of its components from other suppliers, rather than developing them itself. Two months later Prime also introduced its new graphics workstation, the PXCL 5500, for use by automotive, engineering, and aeronautical engineers. This product allowed designers to do three-dimensional work in color.
In April of 1987 Prime introduced a computer based on the latest micro-chip technology, which ran on the UNIX operating system, making it compatible with a variety of computers made by other manufacturers. In June Prime further pressed its campaign to keep its products on the cutting edge with the introduction of a new super-minicomputer, the Model 6350, which was followed by the Model 6550 at the end of the year. The company hoped to vanquish its competition and shore up its results, which had become depressed again in 1986, as buyers shied away from large investments in computer technology.
In October Prime made the first of its major CAD/CAM purchases when it bought the Versacad Corporation, which produced design systems for use on personal computers. However, the company's largest CAD/CAM acquisition came at the end of 1987, when Prime made a surprise $390 million bid for Computervision Corporation. Computervision offered Prime a new design workstation, a wide range of software applications, and 2,000 new clients. With the merger, Prime's 3.6 percent share of the CAD/CAM market quadrupled to 16 percent overnight, making it second in the field after IBM and tenth in the computer industry overall. By January 29, 1988, Prime had reached an agreement to purchase Computervision for $435 million, after the smaller company spent a month unsuccessfully shopping around for a better deal.
Prime reported 1987 revenues of $961 million, and profits of $65 million. The company made a third acquisition in the CAD/CAM field in October of 1988, when it bought the Calma Company from General Electric. With these three major acquisitions, Prime found itself facing the substantial task of integrating all of its new CAD-CAM operations.
Prime was in the midst of this project when MAI Basic Four, Inc. made a bid to buy the company for $970 million in a hostile takeover attempt in November of 1988. Prime instead arranged a leveraged buy-out in late 1989. In August of that year, DR Holdings, Inc., a company set up by the New York investment banking house J.H. Whitney & Company, purchased 79 percent of Prime's shares, and the following January, Prime formally merged with the holding company, completing the leveraged buy-out.
Although this tactic had enabled Prime to stay independent, the company had been forced to borrow a large sum of money in order to go private. The company found itself with an obligation to pay more than $125 million a year in debt service, at a time when the computer industry was undergoing a deep transition. In November of 1991 Prime introduced a new generation of CAD/CAM design workstations that offered additional capabilities but was also hampered by a number of drawbacks.
In the following year, Prime saw its operations further undercut as the market moved from reliance on specially-designed proprietary systems to open computing environments. In addition, a deep global recession cut into the buying power of its target customers in manufacturing. Finally, in August of 1992, Prime acknowledged the collapse of its hardware business and discontinued its minicomputer manufacturing operations. Instead, the company decided to concentrate its energies on its joint marketing agreements with Sun Microsystems and Digital Equipment for CAD/CAM systems.
That summer, Prime also moved to solidify its financial position by reducing its enormous debt. In order to do so, the company once again offered stock to the public, selling 25 million shares of common stock on August 13, 1992. Two weeks later, on August 26, 1992, Prime filed for bankruptcy and protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code, in order to clear the way for its future viable operation.
In addition, Prime changed its name at this time to Computervision Corporation, to better reflect the scope of its newly reduced operations and capitalize on the market identity of its subsidiary's name. With the company's near-failure, customers had become reluctant to invest in its systems, concerned that service support and future advances in technology might not be forthcoming. Despite these efforts to revive the ailing company, Computervision reported in October of 1992 that losses for the quarter would be substantially worse than expected, totaling $88.1 million despite a $20 million gain from discontinuing its manufacturing operations. In March of the following year, Computervision reached an agreement in principle with its financial backers as part of its Chapter 11 proceedings.
Later that spring, Computervision's president was fired, and new management was installed in hopes that the company could be saved, but by October the picture looked bleak. Business conditions in Europe and Japan, where the company did 70 percent of its business, had not improved. In an effort to cut costs, Computervision laid off 2,000 of its 4,500 workers, taking a $75.2 million charge for severance pay, and the company reported a third-quarter total loss of $543 million. Overall, the company's business plan at the time of its stock sale in 1992 had been a complete failure, and Computervision was hit by a number of shareholder suits alleging improper disclosure.
In its new incarnation, Computervision billed itself as a software and services company. The firm announced that it would no longer resell hardware made by Sun Microsystems, because customers did not want to operate through a middleman. Instead, the company would tell customers which hardware was necessary to run Computervision software, then take a commission on the sale to Sun.
With its new focus on software and services as well as its dramatically lowered overhead, which had been attained through staff cuts and sales of company property, Computervision hoped that its CAD/CAM products could keep the company afloat. In the spring of 1994 the company received a large contract from the Rolls-Royce Aerospace Group, brightening the outlook. Although Computervision appeared to have pared its operations to a manageable size, the company's large debt cast doubt upon its future chances. Whether Computervision would ultimately be successful in negotiating this acute crisis and moving forward into the late 1990s remained to be seen.
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