Retreat Set by Texas Instruments

By Andrew Pollack
The New York Times

October 29, 1983

Texas Instruments Inc., battered by its second huge quarterly loss, announced yesterday that it was ending production of its 99/4A home computer and pulling out of the home computer business.

''In order to limit further financial drain on T.I., we have made the decision to withdraw from the consumer home computer business,'' the company said in a statement attributed to Mark Shepherd Jr., its chairman, and J. Fred Bucy, president.

That announcement came simultaneously with the company's report that it had lost $110.8 million in the third quarter of this year, after a $119.2 million loss in the second quarter. The latest loss was in contrast to net income of $36.9 million, or $1.57 a share, in last year's third quarter.

Loss on Computers

In home computer operations alone, the company lost $330 million before taxes, including a write-off associated with pulling out of the business. In the second quarter, it lost $183 million on home computers, bringing total losses in two quarters to more than $500 million.

The statement said that production of the company's home computer would cease in November and that there would be ''significant'' layoffs at the company's home computer operations. The company said it would also substantially lower the price on the 99/4A to help clear remaining inventory from the store shelves. The computer now sells for a $149 retail price plus a $50 rebate.

Business Model Continued

Texas Instruments said it would continue to make and sell its Professional Computer, a more expensive personal computer designed primarily for business use. It also said it was remaining in the calculator business.

The company did not specify how many layoffs it would have or what the price cuts would be. Charles W. LaFara, a large mail order distributor of the home computer products in Oklahoma City, said that he had heard from T.I. employees that there would be 4,000 layoffs and that the price of the computer would be reduced to $47 wholesale, from $147, with the rebate removed. ''I think I'm going to be sick,'' Mr. LaFara said.

The pullout raises the prospect that existing owners of the T.I. home computer will find it more difficult to obtain servicing and new programs to run on the machines. There are more than a million owners of the low- priced machine, making it by some estimates the second most widely owned computer, after the Commodore VIC-20 and ahead of the Apple II.

Texas Instruments said that it would continue to provide service for the machine. It did not say who would provide software for the machine, but it appeared clear that new software would be developed only if other companies thought they could make money doing it.

Home computer sales are estimated to represent less than 10 percent of the company's revenues, which fell in the third quarter to $1.01 billion from $1.05 billion in the same period last year. Not counting consumer electronics, revenues climbed 11 percent, the company, whose major product is semiconductor chips, said.

The announcement marked the latest casualty in the home computer and video game businesses. Although demand for home computers is growing rapidly, supply has been growing even faster, leading to oversupply and steep price cuts. Mattel Inc. has already pulled back on plans to market a home computer, and there is speculation in the industry that Warner Communications' Atari is also considering withdrawing from the market.

New Companies Entering

At the same time, new companies are entering the business, moving it in a new direction. Coleco Industries recently started shipping its Adam, and the International Business Machines Corporation is expected to introduce its home computer next week. Both these new machines are in the $600 to $1,200 price range and are more useful than the computers like the 99/4A, which is limited to playing games and some simple tasks unless a lot of equipment is added.

While many industry analysts had speculated that T.I. would pull out of the home computer business, the company has been insisting it would stay in. Less than two months ago, it hired a Procter & Gamble executive to revamp its consumer operations. Yesterday's announcement was, therefore, something of a surprise, especially coming just before the heavy Christmas selling season.

Texas Instruments said that retail sales of the 99/4A were disappointing and that there was still excess inventory on retail shelves, which limited new orders and led to an operating loss in the quarter. ''With this situation continuing into October, it became clear that fourth-quarter demand would not be sufficient to prevent large additional losses,'' the company said.

''The first nine months of 1983 have been the most difficult period in the history of T.I.,'' the two officials said in the statement. ''We believe that, with the painful, but correct, decision to withdraw from the consumer home computer business, that period has now ended.''

Favorable Response Expected

The company's withdrawal from home computers is bound to be greeted favorably on Wall Street. Analysts have long noted that, even though home computers are only a small part of T.I.'s business, the losses were so large as to outweigh the profits from all other divisions combined.

Analysts have also often said that T.I., whose other businesses include semiconductor manufacturing, larger computers, seismic exploration and defense electronics, is not cut out for consumer business. It withdrew from digital watch business two years ago.

The Dallas electronics company, with 1982 revenue of $4.33 billion, said that its loss came at a time when its businesses other than consumer products were improving. For the first nine months of 1983, T.I. lost $222.9 million, in contrast to a profit of $101.5 million in the first nine months of 1982. Revenues climbed slightly to $3.28 billion from $3.22 billion.

Painful Saga Ended

The withdrawal from the home computer business marks the end of a saga that has been embarrassing and painful for Texas Instruments from the start. The company in 1979 was one of the first to market a computer strictly geared toward home use, as opposed to office use. But the machine, which sold for $1,150, was too expensive and was a failure.

Starting in the middle of 1982, however, prices began dropping to as little as $100 for essentially the same machine that sold for $1,150 a few years earlier. Sales of the Texas Instruments home computers, as well as those of other manufacturers, started soaring late last year, and it looked like the T.I. home computer was on its way to success at last.

This year, however, Texas Instruments ran into problems in February when it had to withdraw its computer from the market briefly because of an electrical problem. It also started losing money because prices were too low, while Commodore International, its chief rival, could continue to produce its VIC-20 at the same low price for a profit. The Texas Instruments computer also ran into problems because other computers had more software.

Earlier this month, it was learned that T.I. did not plan to introduce a more powerful home computer, the 99/8, that it had been previewing to retailers for more than six months.

T.I. is not the only home computer manufacturer to have problems. In addition to Mattel's pullback and delays in getting Atari computers to market, Coleco was late shipping its Adam computer, meaning it will fall far short of its sales goals for the year. And Commodore, the only company that has been profitable, is now running into problems because of a shortage of disk drives and what retailers say is a high defect rate in its Commodore 64 computer.

The home computer field thus resembles a battle in which all sides kill one another off and no one is left standing. This will make the path clearer for I.B.M. At the same time, ironically, there might be a shortage of home computers in stores this Christmas because of the carnage wrought by the previous oversupply. a $149 retail price plus a $50 rebate.