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Tandon Splits Into 2 Units, Unveils Cost-Cutting Moves

August 26, 1986|JAMES BATES | Times Staff Writer

Tandon Corp., struggling with price cuts in the personal computer industry and the drying up of its disk-drive business, said Monday that it will reorganize itself into two independent units for manufacturing computers and memory equipment.

Company executives also disclosed that Tandon's flamboyant chairman and founder, Sirjang Lal (Jugi) Tandon, has voluntarily slashed his annual salary to $1 from $275,000 as part of a series of belt-tightening moves taken by the Chatsworth-based computer products company.

Other cost-cutting moves include the dismissal of 50 corporate and administrative employees and a hiring freeze, as well as a 10% reduction in overall payroll costs that includes eliminating matching contributions by the company to employee pension funds. Tandon will also eliminate first-class travel for executives and, President Dan H. Wilkie added, will no longer lease cars for its top officers, including a Mercedes Benz that he drives.

The moves by Tandon come slightly more than a week after the company posted a $20.3-million loss in the third quarter ended June 29, most of that stemming from problems with its now-closed Microtek Storage disk-drive plant in San Jose.

The company earlier this month dismissed 225 people when it closed the San Jose plant. It also furloughed for up to six weeks 270 workers in Thousand Oaks and Simi Valley who work in its personal computer division. The company, which employed 2,450 people domestically in March, 1984, now employs about 950, including nearly 200 at its headquarters in Chatsworth.

In an interview, Wilkie said the restructuring's goal is to create two so-called profit-loss centers that break out their results separately. The system is expected to put more pressure on each unit to be profitable, make them more accountable and make problems easier to identify. Overseeing the units will be a six-member committee of top executives.

Wilkie, who will continue to oversee all of Tandon's operations as the company's chief operating officer, will head the personal computer unit. Joseph A. Sarubbi, a former IBM executive whom Wilkie recruited in February to be Tandon's senior vice president of manufacturing operations, will head the disk-drive operation.

Securities analysts said the move may be an attempt to revive Tandon's ailing disk-drive business, which makes the devices that personal computers use to record and retrieve data. That area of business has suffered as the company shifted its emphasis from disk drives to personal computers, analysts said, because many potential customers are now competitors.

Wilkie acknowledged that the company has lost more business in disk drives than it had expected. The disk-drive operation has not received the marketing emphasis that it requires, he said, because so much effort has gone into launching the company's brand-name computers.

Other observers, however, said Tandon is finding retailers reluctant to carry its personal computer. That has happened, they said, even though the company has built what is widely regarded as a top-level management team that includes four former key IBM executives, including Wilkie, who helped launch IBM's highly successful Personal Computer five years ago.

"The biggest problem with the industry is that the Tandon machine is not viewed as being real strong technically as it enters the market. The only thing that Tandon has going for it at this point is its management team," said Stewart Alsop II, publisher of the P.C. Letter newsletter in Redwood City, Calif.

Wilkie said that price cuts by makers of so-called IBM clones have been more widespread and deeper than the company expected, but he added that Tandon still believes that it can make a successful transition into the personal computer business. "The optimism . . . is still there," Wilkie said. "But it's more reserved."

Analysts noted that the reorganization would make Tandon similar in structure to IBM. It also is further evidence, they said, that Tandon's survival is largely in the Wilkie's hands.

In its announcement, Tandon said the restructuring completes the transfer of operational control to Wilkie from Sirjang Tandon, who remains chairman and chief executive. Wilkie emphasized that the transfer of that authority was agreed to when he was hired as president in late November.

Sirjang Tandon will devote his time to strategic planing and policy development, the company said. He will not serve on the six-member committee that will oversee company's operations, but it--and Wilkie--will report to him.

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