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The Rise and Fall of a Computer Firm That Could Do No Wrong : Electronics: CMS Enhancements of Irvine rode the success of the personal-computer revolution before a single venture almost destroyed it. The company's losses since 1990 are more than it has made in profit since going public in 1986.

October 04, 1992|DEAN TAKAHASHI | TIMES STAFF WRITER

IRVINE — Something went terribly wrong on the way to the computer systems market.

Jamshed (Jim) Farooquee, chief executive of CMS Enhancements Inc. in Irvine, knows that all too well.

A failed joint venture and other ills have cost his company $17 million in losses for the past two years and forced him to lay off more than 350 employees since 1990.

Another year of such losses and CMS may have to seek bankruptcy protection, the company disclosed last week in a filing with the Securities and Exchange Commission.

Once confident that he could parlay his success in selling computer enhancements, such as hard disk drives, into marketing complete computers, Farooquee saw his strategy unravel during this year's industry price war.

"I unfortunately made more than one mistake," said Farooquee, 39. "We learned a few lessons, some very expensive lessons."

The rise and fall of CMS Enhancements, a $115-million company with operations in Irvine, Singapore and Pakistan, may sound familiar. CMS is the latest example of a computer peripheral company that rode the success of the personal-computer revolution only to make an ill-fated expansion into the saturated marketplace of selling complete computer systems.

This setback has been difficult to swallow for Farooquee, who emigrated from Pakistan in 1975 with a civil engineering degree and $40 in his pocket. He developed a career as a quintessential salesman of everything from insurance to computers.

"Farooquee was living on the riches that CMS made years ago," said Ian Gilson, an analyst at L.H. Friend, Weinress & Co. in Irvine. "Now he is waking up."

Now, the company is in full-scale retreat. In August, Farooquee confirmed that CMS' joint venture with South Korea's leading computer company to sell PCs in the United States had failed.

The company's combined losses since 1990 are more than it has made in profit since going public in 1986.

Arthur Andersen & Co., the company's auditor, said in a filing last week that the losses raise "substantial doubt" about CMS ability to continue as a business. The company acknowledged in the filing that if the losses continue at this level, CMS may have to file for Chapter 11 bankruptcy protection.

"Most companies cannot survive this level of losses, but we believe we are in a turnaround," Farooquee said. "The disclosure is a precautionary accounting requirement."

Besides laying off employees, CMS is saving money any way it can. Idled manufacturing plants in Singapore and Pakistan are up for sale. A disk drive repair business was shuttered. And Farooquee hopes to sublease two-thirds of the company's Spartan headquarters building.

Yet CMS has managed to stay afloat, partly because the dramatic cuts in computer systems prices have not translated into a severe price war in the hard disk drive industry, which collectively has grown wary of overproduction. Disk drives account for 70% of CMS sales, and Farooquee said the company expects to report a profit in its first fiscal quarter ended Sept. 30.

Farooquee also said CMS now has a technology that could help maximize the flow of data through all computers, regardless of future technical advances by industry components makers. CMS hopes to license it to other computer manufacturers.

But, acknowledging that his dreams of creating a billion-dollar computer company have been dashed, Farooquee is too gun-shy to predict a comeback, and said he won't bet the company's future on a single venture again.

"I'd rather be successful as a small company than be a broke billion-dollar company," he said.

The soft-spoken Farooquee said his company's woes often prompt him to reminisce on the early days of CMS, which originally stood for Complete Management Systems.

To Farooquee, selling computer equipment in the 1980s came as easy as his early ventures selling insurance, real estate and carpets.

Farooquee and his partner, Mason Tarkeshian, created the company in July, 1983, with $12,000 in cash. They were joined later by owners of a computer store, Tom Ong and Jimmy D'Jen.

They shared the same entrepreneurial visions as the immigrant founders of AST Research Inc., which started in 1981 and has become Orange County's biggest computer company.

"Jim was a very good salesman," said Ong, now retired and living in Newport Beach. "His eyesight is very wide and his reaction very fast. He was like a wild horse, and he needed us to support him. I hoped CMS would keep expanding, and I believed that Jim Farooquee could make it do that. But as you know, any business relies 50% on fortune."

Originally, the company dabbled in selling various components of PCs to retail businesses. In November, 1984, Farooquee found a way to ride on the spectacular growth of PCs by selling key enhancements known as hard disk drives to small computer dealers.

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