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Packard Bell to Cut 20% of U.S. Work Force

Technology: Ziff-Davis is also planning layoffs and warns of weaker fourth-quarter profit.

October 09, 1998|From Bloomberg News

Packard Bell NEC Inc., the world's No. 5 personal-computer maker, said Thursday that it will cut as many as 1,000 jobs, or about 20% of its U.S. work force, to lower costs and try to compete better with larger rivals.

Meanwhile, Ziff-Davis Inc., publisher of PC Week and other computer and Internet magazines, said it would also eliminate jobs and warned that fourth-quarter earnings will miss estimates as a result of a computer-publishing slump.

The announcement sent New York-based Ziff-Davis' shares tumbling $1.69, or 28%, to close at $4.25 on the New York Stock Exchange. The company also said it would fold three of its 33 publications--Internet Business, Equip and Windows Pro--and will take a charge against earnings of $50 million to $60 million in the fourth quarter.

The profit warning comes as competition intensifies in the technology media sector and as Ziff-Davis' advertisers face lower growth and slower roll-outs of new technology products. The company said the restructuring should cut costs by about $45 million annually. It also said it will issue a new class of shares that tracks its Internet business, ZDNet, to better reflect the value of this business.

Also Thursday, San Jose-based Digital Microwave Corp. said it would fire 20% of its worldwide work force, about 200 people, after completing its purchase of Innova Corp.

Closely held Packard Bell said it will eliminate the targeted jobs before year's end. Operations in Europe, Asia and Latin America won't be affected, Packard Bell said. Japan's NEC Corp. of Japan owns 53% of the company. Bull of France owns 12%.

The Sacramento-based company, a pioneer in the PC business, has been losing market share to larger rivals such as Dell Computer Corp. and Hewlett-Packard Co. Those companies have been able to slash prices to lure buyers because their production costs are lower.

"Packard Bell hasn't been as focused on efficiency as other manufacturers," said Kevin Hause, an analyst at International Data Corp. "Their costs are quite a bit higher."

NEC, Japan's largest maker of PCs, invested an additional $225 million in the money-losing company in July to try to improve results, while Bull put in $25 million more. Packard Bell doesn't disclose the size of its losses.

Packard Bell has 5,000 employees in the U.S. and a total of 7,000 worldwide, with plants in the U.S., France, Brazil, Malaysia and Scotland. Between 750 and 1,000 employees will be cut in the U.S.

"We need to become more competitive and deliver higher-quality products and services at a lower cost and with fewer people," Packard Bell Chief Executive Alain Couder said in a statement. Couder, former chief operating officer at Bull, took over as CEO and president in September. Founder Beny Alagem resigned as chairman, CEO and president in June.

Packard Bell had 7.6% of the U.S. market for personal computers in the second quarter of this year, down from 9.4% in the same period a year ago, according to IDC.

Packard Bell last month agreed to pay $3.5 million to the U.S. government to settle charges that it defrauded the military by selling computers made with some used parts.

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