Computer Prodigy Has Paid Off for Engineers

Remembering the mad times two years ago when he and his partners were gambling everything--not just all their money, but their health and sanity too--on their product, Stanislaw Lewak admits he’d never do it again.

Lewak and three other computer engineers had founded Levco Corp. in February, 1985, with $10,000 and began making money selling kits that increased the memory of Apple’s newly introduced Macintosh computer. But Levco still needed a breakthrough product that would guarantee the future.

The four engineers, Lewak, Doug Gilbert, Curt Johnson and Duane Maxwell decided to go after the ultimate “add-on”--a new-generation computer chip that quadrupled the processing speed of the Macintosh, a modification that Apple’s engineers insisted couldn’t be done.

After two months of 120-hour work weeks, sleeping in the office, ignoring their families, living on pizza and soda, the Levco team came up with an accelerator board called Prodigy that connected what amounted to an entirely new computer onto the existing hardware of the Macintosh.

Prodigy carried a price tag of $9,000--four times the cost of the original Macintosh desk-top computer--but cranked the Mac’s processing speed up to that of a $40,000 mini-computer.

“That kind of work takes a terrible toll on your body,” Lewak said. “When we were finished, we looked like we were dead.”

Started Out Small

The initial market for the Prodigy was tiny--Levco sold “several hundred” at that price--but the product’s performance got the company’s name into every Macintosh magazine. The Prodigy was a technological tour de force, a silicon calling card that was worth thousands of dollars in advertising.

Propelled by sales of Prodigy, Levco’s revenues for the fiscal year ended June 30, 1987, were $2.6 million. Sales of the Prodigy accelerator boards hit a peak of about 100 per month, according to Roger Phillips, who joined the firm last February as president.

“We were too dumb to know it couldn’t be done,” said Johnson of the company’s invention. Co-founder Johnson put up the initial $10,000 that started the company.

Over the past six months, the Macintosh market has changed and so has Levco’s. The new Macintoshes introduced last February are being taken seriously by the business community and they are selling fast, creating a much broader market for add-on products like Prodigy.

Accelerator boards are selling for as little as $700--Prodigy now starts at $1,500--but the market has grown to an estimated 40,000 to 120,000 units sold per year.

And Levco, one of only two surviving companies that started up trying to modify the Macintosh, is making the jump into the big time. In 1988, Phillips projects that Prodigy sales will hit 1,000 per month and overall sales of Levco products could reach $16 million.

To finance Levco’s growth, the founders in August sold the firm to a publicly owned Mountain View-based company, Scientific Micro Systems, which makes computer peripheral products. Terms of the sale, a stock swap, were not disclosed.

The deal left Levco a wholly owned subsidiary of Scientific Micro, with the four founders in charge of research and development. Manufacturing and marketing of the “mass market” products, such as Prodigy and other accelerator boards and of lower-cost memory expansion units, have been moved to another Scientific Micro subsidiary with a dealer network of 2,000 retailers.

The Levco staff will be in charge of developing new products, marketing all the high-end, low-volume products, and developing new lines of business that sell complete hardware and software packages to selected professions, such as architects. Those businesses will generate $4 million in sales next year, Phillips estimated.

Remain Independent

Levco will continue to operate out of its Sorrento Mesa offices; since the Scientific Micro merger, the staff has grown from 23 to 25. The founders say the deal left them with the best of both worlds: the engineering challenge without losing their freedom working for someone else.

But even in the computer industry, where overnight successes are common, Levco’s story is unusual because the company started out selling “outlaw” products. Unlike software developers, which Apple actively encouraged for the Macintosh, hardware developers were taboo.

In contrast to the IBM PC, which had slots for accessories such as accelerator boards, the Macintosh couldn’t even be opened with normal tools. What was more discouraging, Apple threatened to void the warranty or refuse service to anyone who modified a Macintosh.

Levco’s outlaw approach was demonstrated when it introduced its first product at the Mac World computer show in San Francisco in 1985. The product, a memory-expansion kit, quadrupled the data storage capacity of the original Macintosh. Apple was selling a similar kit for $1,000; Levco took its to market for $350.

The process for installing the memory kit was no secret at the time, and Levco had two or three competitors with booths at the show. But the difference was that the Levco founders brought their soldering irons and installed their product while Mac owners waited.

“The other companies had flyers, but we took the equipment to do it in the booth,” Johnson said. “We got nothing on the first day. Then one brave soul gambled on us, and others started coming. Pretty soon, people were lining up, watching us.”

To keep up with demand, the four worked all of one night in their hotel room modifying machines. By the time the show was over, they were a hit. The original $10,000 investment had grown into $30,000 of retail sales over four days.

But Levco’s memory upgrade also was sold as a do-it-yourself kit, complete with detailed instructions. And, because the parts were little more than off-the-shelf chips, the instructions showed everyone how to get into the business.

“One of the first things we discovered,” Johnson explained, “is that the instructions put a lot of people in business competing against us.”

Chasing Own Shadow

Levco realized that it would have to make products that couldn’t be copied so easily. As they set to work, they heard a discouraging rumor, that “a national company” was coming out with a one-megabyte memory upgrade for the computer, double the size of the Levco kit. Fearing they would end up as “a two-month company,” as Johnson put it, they decided to top that threatened product, and cooked up the “MonsterMac.”

With two megabytes of memory (roughly 1,000 typed pages), the MonsterMac kit was the biggest memory upgrade around. But it did more. Through determined reverse-engineering--starting with the completed computer and figuring out how it was engineered by taking it apart--the four engineers had divined what made the Macintosh tick. They then tinkered with the way it used the extra memory of the MonsterMac to make it run about 20% faster. This was the edge they needed to keep their newly minted competitors from copying them again.

When the MonsterMac hit the streets in March, 1985, however, the rumored competition did not materialize. After checking around, the Levco founders discovered why: the rumored “national company” was Levco.

“It turned out we were chasing ourselves,” Lewak said. It was a race that was hard to lose, and Levco started selling about 150 of the $800 MonsterMac upgrades per month. “That would be nothing in the IBM market, but it kept us in business,” Johnson said.

More important, with the reverse-engineering done, the engineers discovered that they already were far down the road toward their accelerator-board product, the Prodigy.

As Levco’s products continued to sell--despite Apple’s ban on modifications--Apple became schizophrenic about the company. At one computer show in 1985, for example, Apple invited Levco to share Apple’s booth, all the while disavowing anyone who installed a Levco product. The ambivalence reflected a split in Apple’s management over whether to open up the Macintosh for third-party add-ons, or continue to insist that it was “closed.”

Those in favor of opening up Apple’s architecture pointed to IBM’s decision to open its PC design, gaining the support of third-party peripheral manufacturers who made an array of products enhancing the usefulness of the computer and broadening its market. Those in favor of keeping the Macintosh design closed argued that Apple could thereby monopolize sales of hardware and bar any attempts to clone the computer.

‘Open’ Faction Wins

It was the victory of the “open” faction in 1986 that is largely responsible for the boom in Macintosh sales, according to industry observers. Until that critical decision was made, however, Levco constantly operated under a financial cloud.

Apple’s “closed computer” policy, the uncertainty of the Macintosh’s future, and Levco’s lack of an adequate business plan turned the venture capitalists off to the fledgling firm. As a result, Levco could not afford to tackle new products that involved heavy marketing costs or working capital.

Levco produced a hard disk drive for the Macintosh, for example, but never seriously marketed it because Levco couldn’t afford to produce the drive in sufficient volume to warrant a marketing effort.

“We had to find products that would sell themselves, so we concentrated on the high end, the best available. We always had to offer more memory, more expandability, more options,” Johnson said.

Although that strategy worked, it left Levco ill-prepared for the advent of the open Macintosh introduced in early 1987. The open Macintosh dramatically changed the complexion of the market because accelerator boards were now cheaper to make and easier to install. Apple’s new approach of actively encouraging such products also appealed to the business community, and sales picked up rapidly.

But Levco still faced disappointment. Despite its hopes of selling 1,000 Prodigy boards a month after Apple released the open Mac, Levco was selling only 100 boards a month as of last June, a shortfall Levco attributed to lack of marketing capability. In addition, its manufacturing capacity was only 200 units a month, Phillips said.

“A small company can no longer survive selling 100 units per month,” Phillips said. ‘You have to get into the ComputerLands.”

The acquisition last August by Scientific Micro with its extensive dealer network did that for Levco. Now the Prodigy accelerator board is marketed under the Scientific Micro’s SuperMac trademark as the SuperMac Prodigy.

“Although Levco appears only in the fine print of the ads, the Prodigy name has become synonymous with the firm,” Johnson said. The Prodigy remains a high-end product, with a price tag starting at $1,500.