The Globe and Mail (Canada) June 17, 1983 Friday Computers a pitfall for Texas Instruments BYLINE: GAM LENGTH: 742 words Texas Instruments Inc. of Dallas has become the latest company to take a tumble in the increasingly treacherous home-computer market, disclosing that it expects a loss of as much as $100-million (U.S.) for the second quarter. Less than two months ago, J. Fred Bucy, Texas Instruments president, told shareholders at the company's annual meeting that "1983 holds the promise of being a significantly better year for Texas Instruments than 1982." But that hope was dashed by plunging software sales and lower home- computer shipments starting in the second half of May, and by widespread price-cutting, the company said. It also said that the sales decline and a planned cut in production will necessitate a large write-off, worsening the expected loss. Texas Instruments is one of the market leaders in the burgeoning home- computer market - computers priced below $1,000 - along with Commodore International Ltd. of the Bahamas and the Atari Inc. unit of Warner Communications Inc. of New York. But Texas Instruments said it does not expect its consumer-electronics business to be profitable this year, and therefore "it now appears that 1983 will be a significantly poorer year," than 1982. Texas Instruments' tailspin could be an early sign that home-computer makers have begun to glut the lower end of the market and that price- cutting has begun to take its toll. "Sales have increased, but not as much as home-computer manufacturers wanted them to," observed Egil Juliussen, chairman of Future Computing Inc., a Richardson, Tex., marketing research firm. "With prices going to $100 a unit from $200, they needed almost twice as many sales and that hasn't materialized." Although some U.S. industry experts have predicted sales of as many as eight million units this year, Future Computing is predicting five million units - twice the 1982 output but below what manufacturers may need to offset price-cutting and support greatly expanded production. Atari Inc. was the first market leader to feel the pinch, reporting big losses starting late last year. But so far, the other market leader among the three biggest companies - Commodore International - has shown immunity to any slowdown, reporting recently that profit for its third quarter ended March 31 surged 124 per cent to $25-million. Texas Instruments said its problems began suddenly in the second half of May, when retailers slashed orders for its 150 popular plug-in software packages because of a sharp buildup of inventories in home computers, video games and related products. It said shipments of its 99-2A home-computer consoles, slashed in price several weeks ago to $100 each from $150, also started to sag in late May. The price had been reduced even before that. In addition to lower sales, the company said its expected second quarter loss will stem from price-cutting throughout the industry and from increased reserves for rebates and price protection payments to retailers caught with swollen inventories. Texas Instruments also said it plans to reduce production in 1983 for both home-computer hardware and software. Industry sources estimate the company had been selling about 150,000 units a month. The cutbacks "will require a significant charge in the second quarter for inventory revaluation and write-offs," the company said. A Texas Instruments spokesman also disclosed that the company is formally abandoning plans to market a home computer called the 99-2, which would have been priced below the 99-4A. "It is clear that with the price reductions in the industry it is no longer practical," the spokesman said. Texas Instruments said it plans "aggressive cost-reduction measures" but would not say how many employees might be laid off. The company has about 80,000 workers world-wide. But Texas Instruments said it plans to continue a strong development program in new hardware and to conduct a "vigorous software expansion." For the 1982 second quarter, Texas Instruments reported earnings of $36.9-million, or $1.56 a share. For the full year, profit was $144- million, or $6.10 a share, on revenue of $4.33-billion. In this year's first quarter, a transformer defect in the company's 99- 4A model caused a $50-million pre-tax loss because of recalls and other expenses. The loss made profit $7.1-million, or 30 cents a share, compared with $27.7-million, or $1.17 a share in the year-earlier period. Sales rose about 9 per cent to $1.17-billion fom $1.08-billion.