#CBU, $177.6M Loss
26 messages in this thread
NEW YORK (AP) — Commodore International Ltd. said Friday it lost $177.6
million in its third fiscal quarter after charges of $135 million for cutting
inventory of old computer products and restructuring.
The loss amounted to $5.37 per share for the quarter ended March 31. A year
ago, Commodore earned $4.3 million, or 12 cents per share, in the same period.
Sales were $120.9 million in the quarter, down 38 percent from $194.6
million a year ago.
The company attributed the decline to the soft economy in its major markets,
notably Germany, and heavy price discounting in its older Amiga personal
computers.
Commodore said it took a $65 million charge in the quarter to account fo
reducing the value of its inventory and a $70 million charge for special
promotions and restructuring costs.
In the first nine months of its fiscal year, Commodore lost $272.9 million,
or $8.27 per share. The company earned $49.5 million, or $1.47 per share in the
same period last year.
Sales were $517.2 million, down from $770.3 million in the first nine months
of its fiscal 1992.
Commodore stock closed unchanged at $4 a share in trading Friday on the New
York Stock Exchange.
You didn't also happen to notice whether or not there's any truth to
the rumor that CBM is being investigated by the SEC, did you?
… And how's IBM doing these days?…
I hope this scares the right people into doing something!
Richard -> via the Amiga 1000 AutoPilot
Hi Steve,
If I read you right C= lost have lost more money per share than the actual
share is worth. Is that correct, if so is C='s long term viability threatened?
I'm not trying to say "~~Are they about to go belly-up?", but wont that sort of
loss affect their long term ability to do R&D, promotion, and compete against
"the big boys", basically does this threaten to push C= further toward niche
status ~~~like Acorn? (who may actually be on the comeback trail with a new
risc chip btw).
I can not tell realistically how C= is doing, I'm in Australia where they have
made sure it will never be more than a competitor with Sega and Nintendo. I
judge the Amiga on it's merits not it's maker but obviously if the maker is
threatened so is the machine, I'd hate to see that.~
– Dale (who is rather hipocritically using Nav)
Dale,
I don't have the financial background to even attempt to answer your questions.
However, I have to wonder about competence at the highest levels of management
when a company has $120M is sales in a quarter yet manages to lose almost $2M a
day.
In my opinion (and that's not worth much — again, no background to comment
knowledgably), the loss YTD is $273M — that means that many things can now
happen… they can slowly go away, they can sell the company, they can be taken
over (value of stock, at an all time low now, is bound to crash on Tuesday).
Or, hopefully this will be taken as a wake up call to make better product
decisions (the A600 was a failure the day it was released — AA was only a
couple of months away, they knew it, and who in their right mind would buy an
ECS A600 when they could get an A1200, the CDTV was an ill thought out product
— it flopped, as most any Amiga user would have predicted when it was
introduced) — tens of millions were wasted on these products. As well as
product direction, a sensible, agressive marketing effort is needed. What I
see now is Amiga at the forefront in the video niche (necessitating high end
machines) and CBM is twiddling it's fingers losing money on the lowend market.
Don't mistake losing money with declaring a loss. Commodore took a whole lot
of "loss" when they discounted the low-end line heavily; that doesn;t mean they
actually LOST THE MONEY, it means they didn't make as much as the could have
made (and are entitled to call that a loss for tax reasons.) That's one big
reason why the stock price didn't nudge when they declared the loss; everybody
knew it was a paper loss. In other words, there is more than enough money
coming in to meet the bills and maintain expenditure (though CBU could stand to
cut more costs and redirect some income).
To put the example in everyday terms: you own a drugstore. You buy 1000
electric shavers at $5.00 apiece. You set their list price at $10.00. Demand
for shavers slacks off, so you put the shavers on sale for $7.50. You gross
$75000, net $25000 – but you can call it a $25000 "loss", as long as you can
show that the REAL price of those shavers should have been $10.00. The IRS
isn't stupid, but they do understand the retail market and what sales are for.
<g> Multiply your drugstore by a million and you have a fair picture of CBM.
Bob
Robert,
Yes, there is a difference between losing money and declaring a loss. But
there are a couple of things I think you missed.
The stock price didn't move on Friday because the 3Q report was not
released until after the market closed (it was released about 6PM EDT).
I'd expect a lot of activity on Tuesday when the market opens again.
While they did do $120M in sales for the quarter, sales normally average
$200M a quarter (it was $194.6M the 3Q last year). This puts them in a
$80M hole to start. Then you had a massive write down of $65M — this was
mostly due to dumping A600s, A3000s, and A3000Ts to liquidators. Much of
that liquidation was for the A600. CBM made a huge mistake here. They
produced very large quantities of the A600s. This is a machine that was
doomed from the start. It offered little to no advantage over the
existing A500 and did not have AGA. The A1200 was introduced just a few
months later. That killed any possibility of selling the A600 stock. I
don't have the figures but reliable sources in the UK report that CBM
sold, at full value, about 1/4 of the A600 stock before the A1200 killed
it off. This was a mistake on CBM's part to introduce a machine whose
realistic sales window was only 6 months, a product that was largely
unneeded, and to produce them in such large quantity.
Another $70M write down was attributed to sales promotion and
restructuring. This was probably due to the closing of the Scotland plant
(where A1200s were made) and the final R&D costs of the ECS chipset.
The figures probably aren't as bad as they look on the surface — or they
could be much worse — who can tell with accountants? But, the bottom
line, in my opinion, is that sales were off $80M. THAT'S troubling. And,
I believe they're making poor product decisions (A600, CDTV, and the
rumored CD based game machine that is (again rumored) to be released this
summer in Europe). They appear to be chasing after another C-64 craze
with the A600 (that window of opportunity closed years ago) and trying to
jump into the Nintendo/Sega market (but without a significant number of
titles ready to go, that's doomed — look at Atari's Lynx).
I fear they are abandoning, or at least allowing to slip away, the one
strong market position they have now — the video market, by concentrating
on the low end. Combine this with little to no agressiveness in marketing
and developer acquisition, and you see a company with no real direction.
I'm basing my remarks strictly on the press release of the 3Q report,
press releases of the past, and rumor (reliable, but still rumor). I have
no inside info. From an outsider's point of view, all is not rosy.
-sja
Commodore didn't close a plant in Scotland as it never had one – it
contracted with SCI in Scotland to do assembly work. It did, however,
move it's Hong Kong manufacturing facility to the Phillipines.
Whatever — the fact is that 1200s are no longer made in Scotland. There is
now one assembly plant for all lines and that is now in the Phillipines.
Considering what is happening in '97, I'd move my factory from Hong Kong
to anywhere else!
wmc – via Autopilot!
Your post about C='s errors of judgement makes interesting reading.
I'm not interested in a C= bash, just the facts. Certainly on the
surface of it I am worried by the decisions being made by C=. The
computer market is not easy for anyone at the moment but it doesn't
help if you are making fairly fundamental marketing errors.
I shouldn't presume to tell C= how to do it's marketing (I'm no expert
either) but they really have little concept of dealer support in
Australia. It seems they are exclusively aiming at the home market
via retail, which IMHO is no longer a clever strategic move, people
will want to use at home what they use at work as computers become
more a function of daily life. The idea that people will have a
computer at home that is incompatable with that they use for work
becomes increasingly unrealistic as clone prices drop. I am a victim
of this very circumstance myself, although I still have (and love) my
Amiga, I type this message on an Apple keyboard.
– Dale
Dale,
I was not "bashing" Commodore. I have a vested interest in their survival and
success. I was just pointing out the obvious. Bad product decisions were
made. Marketing has never been consistent. Commodore is running on inertia
but it's apparent that the rapidly increasing clone market in Europe
(particulay in Germany) is supplying the friction to slow that inertia.
Hopefully the results of the YTD (a $273M loss — and I don't expect the 4Q to
be profitable) will give Gould and Ali a wakeup call.
I'm looking at this as objectively as I can. I could bash away with an almost
endless list of specific problems — but that's not productive. If we did not
have a sincere interest in Amiga we would not be in this forum. We need to
realistically look at this results, hope that the wakeup call will be answered
and go from there.
Things could be a LOT worse. CBU had $120M in sales last quarter — NeXT is no
longer (hardware-wise) and Atari had $10M in sales for the same quarter.
Hi Steve,
I did not mean to imply you were bashing C=. The results are concerning though
in light of the current situation in Europe. It is not likely the Europeans
will start growth that will help C=, considering the Bundesbank position on
inflation. While politically the re-alignment of Eastern Europe is great,
economically it spells trouble for quick movement out of recession, especially
considering the tensions that have already resulted in conflict and the
potential for conflict in the old soviet states. The Europeans if anything are
going to insulate themselves, I hope C= has factored in the possibility of
increased levels of protectionism.
– Dale
Steve,
Well said. I find it real hard to talk about C= without boiling over, but
you're right…just bashing away isn't productive.
I hope those in charge at C= respond to the present financial situation in
a productive and creative manner.
-Dave (via AutoPilot)
Hi Bob,
>Don't mistake losing money with declaring a loss.<
Huh? Unless the accounting and taxation system in the US is radically
different than Australia that doesn't make sense. I _can_ see what
you may have meant by it but a loss is a loss is a loss. It means
that you spend more than you earn. There are of course the tricky
little one off "charges" that companies often use to move money
around, but in the end they have to be substantiated to the tax
office (or IRS).
Please don't take offense, but the example you gave seemed quite
flawed to me. If you buy razors for $5 and sell them for $7.50 you
make a $2.50 profit, no matter what you tell anyone about "retail"
(We'll forget about opex for the sake of simplicity). In the final
analysis the P&L reflects what came in and what went out, not what
_could_ have come in.
Until one year ago I worked for a large multi-national computer firm,
doing the tax, and I can assure you, when we reported a loss to the
tax office, it was a real $ loss, the company does not exist in that
form today. Fortunately I did quite well out of the merger that
resulted but many did not, the loss to them was very real.
I don't intend this as a personal comment but too many people today
seem to be preoccupied by moving bits of paper. In Australia we have
had the cold hard reality forced upon us that you have to actually
produce something to generate wealth. There is no such thing as a
paper loss in the long run, that was really the position from which I
wrote my reply to Steve, if C= are losing serious money, I wanted an
opinion from someone in the US as to whether it threatened their
_long term_ viability. As I know first hand, this business is tough,
don't do R&D today, no company tomorrow.
Both you and Steve have convinced me C= is not about to collapse, but
don't get fooled by supposed "paper losses", you have to pay the
piper sometime. My concern lies with tomorrow more than today.
You missed my point. I am not advocating any particular style of accounting,
nor defending the current US practice. However, my example was correct and
that's the way it works here.
Bob
Hi Bob,
>You missed my point.<
I must have. Still I think I understand what you were trying to say and I
didn't mean to make it sound like your point of view was not valid, I know
first hand how companies play with "mickey mouse" money.
If your example is correct though I think I will move to the US and tell the
IRS what I could have earned! The Australian Tax Ofice wont take any of that
sort of thing. Still it raises the point of how different rules can be from one
country to another, a good warning to me not to invest in US companies until I
study your laws and accounting standards. Reporting here is very strict and
getting stricter.
– Dale
The loss includes writedowns of inventory. So CBU previously had booked the
invetory at some value and reflected that as an asset. An asset that is now
worth less reflects a non-cash loss. In some sense it reverses a previous
non-cash gain.
Most distressing from all our points of view, I think, is that sales were off
by 40% and, worse, unit sales of Amigas declined 25%. The new models aren't
moving.
The stock price reflects near-death levels. — Art
Hi Art,
Thanks for your reply. I think I basically get the point Bob was trying to
make, especially now you explain the issue about regarding the inventory as an
overvalued asset, that would make sense, especially in the context he was
talking. I was approaching from the "at the end of the day" viewpoint of actual
cost of stock to produce and associated overhead in regard to revenue obtained.
As I said to Steve, I hope C= has factored in the likelihood that Europe is
going to be a tough market for the next few years. Especially considering the
Amiga's success is based upon European popularity.
– Dale
From a purely hypothetical standpoint, would you be inclined to buy
or to sell C= stock if C= gutted it's engineering facilities to
reduce costs? Commodore has, I believe, publicly announced a
restructuring but the full details aren't known just yet. There is a
1986-7 precedent for such a gutting of engineering, though. Dale
Larson – An Amiga Software Engineer with lots of time on his hands.
I agree with your bottom line in #102397. However, if you buy razors for
$5 and sell them for $7.50 you may nevertheless break even or lose money
if your corporate overhead eats up the $2.50. You then can take a tax
write-off for dumping the razors, cutting your taxes but only reducing
your overall loss, not wiping it out. Then again, you're probably hoping
that news of your bargain $7.50 razors will add up to some favorable
publicity for your store and improved future sales. All those buyers may
come back for blades! <g> Meanwhile, the employees are getting paid and
the doors stay open (more or less) but the stockholders are getting a
smaller dividend or none at all. That, of course, can't last forever.
It's a truism in the computer business that companies often write off
older stock. Of course, Steve Ahlstrom makes the salient point that
perhaps because of poor planning C= had too much stock on hand to begin
with.
Exactly! So eloquently stated that I wont even bother with the long fax reply
my broker sent me. I bought a few thousand more shares, who knows perhaps I can
overtake Mr. Gould and do something with the company!!! 🙂
Now Dell…. That's a company in trouble….
A recent Phila Inquirer business article interviewed a top dog at Commodore, I
can't recall who it was, who said that CBM could sink or swim depending on what
happens this Christmas. I'd say it doesn't look good.
They are in technical default on a multi-million dollar loan from Prudential
Insurance Co.
———————————————-Don- via Whap!
Steve –
I missed your original post (btw, is there a way in AP to go back and pick
it up? – Now, switch hats again…) but it seems that was probably CBM's
intention if the information was released on Memorial weekend – which more
or less starts on Friday at 2pm in New York.
What the CBM board deserves is an unstoppable stockholder revolt. I
realize with annual meetings held in the Bahamas this is hard to realize,
but geez, is it deserved! As I recall, the last quasi-organized attempt
to present issues at the annual meeting – by Dave Haynie or was it Dale
Luck? – was squashed immediately. Obviously, a well-thoughtout response
to an anticipated trend. Now, if the board could only turn their mighty
minds on the marketplace rather than on protecting their assets, we might
have a chance.
Wait a minute, what's this soapbox doing under my feet? Amazing how these
things just sprout up.
One real question, I assume the $177.6M loss was world wide – any breakout
of the US sales?
– Joe
Commodore only provides aggregate data, never data by country, though
some data points to "North America" or "Europe".
It better go up. FOr some reason my wife (who knows Avionics display
proccessors and software inside out, but knows nothing about personal
computers) decided to buy a bunch of CBU stock last Wednesday!!
wmc – via Autopilot!